By JACK HOUGH
Last week's Upside column looked at the question of when Social Security participants should start collecting payments: as early as age 62, as late as age 70 or somewhere between the two. Those who delay payments miss out on early ones but then collect larger ones for life.
Social Security calculates payment sizes in a way that's designed to provide neither a penalty nor a reward for those who wait. But a recent working paper argues that a rise in life expectancies and plunge in interest rates has thrown the math off, and that many participants can now get a sharply better deal by waiting (see "How to Beat Wall Street -- With Social Security").
Many readers responded to the column with emailed questions. I asked the study authors, John Shoven, director of the Stanford Institute for Economic Policy Research, and Sita Slavov at Occidental College, to answer a handful.
Q. I see many affluent retirees taking benefits at 62. Their thinking is that Social Security might be broke by the time they're 70. Also, taxes seem likely to rise from here, so wouldn't it be better to take smaller payments now instead of larger ones later?
-- Brett Sorge, West Palm Beach, Fla.
A: All Social Security reform proposals that we have seen exempt those 55 and over from benefit cuts. The reason is mostly politics, but we think Social Security benefits are quite secure for those currently over 55. In terms of taxes, we are suggesting withdrawing more of your 401(k) assets sooner and deferring Social Security. Both 401(k) withdrawals and Social Security are taxable, so the tax calculation doesn't change the advantage of Social Security deferral.
Q: My husband is 66 and began taking benefits at 62. I'm 63 and the higher earner, and I haven't yet started benefits. I've been told that if I ask for spousal benefits when I turn 66, I won't qualify because the benefit on my own record is higher. I've also been told that the spousal benefit math only works when the lower-earning spouse delays taking benefits. Is that right?
-- E. J.
A: If you wait until 66, the full retirement age, you can collect spousal benefits even as the higher earner of the couple. At 66, when you request spousal benefits, you should make clear that you want "spousal benefits only." You will be able to collect these benefits and still preserve your deferral credits of waiting until later to collect on your own record. The limit on how long you can defer is age 70.
Q: I'm 74 and receiving the maximum amount of Social Security. My wife will soon be 64 and has not worked for many years. Should she take benefits now or wait until 66?
-- M.G., Delray Beach, Fla.
A: It probably is beneficial for your wife to start her benefits or her spousal benefits at this time rather than deferring. It sounds as if you have been the higher earner in the marriage. The payoff from her deferring partially depends on how long you will live. These are always difficult things to think about, but the latest actuarial tables have the remaining life expectancy for someone of your age as 13.66 years. Of course, you may live far longer than that. If she outlives you, she will collect on your record as a widow. The net of it is your situation favors her commencing benefits sooner rather than later.
Q: Could you clarify a point for me? Assume Al and Jane are a married couple. Al is the high earner by a wide margin. Your article states Al defer drawing his benefits until age 70 but begin drawing spousal benefits under Jane's plan at age 66. Does Jane begin drawing her benefits at age 66 too (or at age 62)?
-- John B. McCook, Lake, S.D.
A: In order for Al to start collecting spousal benefits at age 66, Jane would have to have filed for benefits by then. The first age at which Al can get spousal benefits and still continue to defer his own benefits is his full retirement age (i.e. 66). At that time, he can get 50% of the benefits that Jane would have collected if she had started her own benefits at 66. In terms of Al's spousal benefits, it does not matter whether Jane collects at 62 or 66 or any other age as long as she files for benefits before he claims spousal benefits. (If she files before 66, she has to start collecting her benefit. But if she files at 66, she can suspend her payments and continue to earn credits for delay. Meanwhile, Al can still collect his spousal benefit.)