Social Security: When to Start Benefits and How to Minimize Longevity Risk

Meyer, William; Reichenstein, William
March 2010
Journal of Financial Planning;Mar2010, Vol. 23 Issue 3, p49
Academic Journal
• This study examines strategies for singles and couples who are deciding when to begin Social Security benefits. • Two factors should affect individuals' decisions about when to begin Social Security benefits. First, which starting date for singles or starting dates for couples maximize the present value of benefits? Second, which date or dates minimize longevity risk? • For single taxpayers with average life expectancies who will not be subject to an earnings test, present value of benefits is approximately the same no matter when benefits begin. Therefore, based on present value criterion, singles with short life expectancies should begin benefits early and those with longer life expectancies should delay. To minimize longevity risk. benefits should begin at 70. • The decisions for couples revolve around spousal and survivor's benefits. For an average couple, present value is usually maximized when the lower-earning spouse begins benefits as soon as possible (as long as those benefits would not be lost due to the earnings test), while the higher-earning spouse delays benefits until age 70. Longevity risk is minimized when the higher-earning spouse delays benefits until 70. • Finally, this study discusses the do-over option, whereby someone can repay prior benefits and start benefits anew. Singles can start benefits at age 62 regardless of their health and reassess their health at age 70. Couples can also benefit from the do-over but there is a risk of the higher-earning partner starting benefits earlier with the plan to invest the Social Security benefits, keep the interest, and repay them at a later date. There are tax consequences associated with this option, which should be evaluated against the benefits.


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