Social Security Reset: When Does It Make Sense?

Ryan, Charles
June 2010
Journal of Financial Planning;Jun2010, Vol. 23 Issue 6, p62
Academic Journal
• The majority of Social Security retirement beneficiaries claim early and reduced benefits.This is not an irrevocable decision. At a later age, claimants can repay past benefits and reapply for a greater benefit amount commensurate with that greater age. • This paper identifies and analyzes client cases in which lifetime household wealth may be increased by resetting Social Security benefits. Retirees who are risk averse and/or considering an immediate real annuity may find that they will receive a much greater benefit amount if they instead reset their Social Security benefit. • Reductions or increases to retirement benefits are actuarially equivalent for the person with average life expectancy, an unmarried retiree should be indifferent to when he or she makes a claim. However, optimal claiming ages for married couples may be determined by recognizing: (a) the increase to a retirement benefit from delayed retirement credits continues after the workers death in the form of a widow(er)'s benefit; (b) there is no actuarial reduction to a widow(er)'s benefit if the surviving spouse is significantly younger; (c) on average, women live three years longer than men. Among married couples in which the older or less healthy spouse has the greater benefit amount, resetting the benefits of that older spouse may increase lifetime household wealth because the increased benefit will continue in the form of a survivor benefit After repaying benefits, time must elapse before the retiree breaks even on the transaction. If an unmarried retiree dies during this period, his or her heirs will bear the risk of a reduced bequest. Among married couples, if a spouse dies during this period, the financial outcome is largely dependent on differences in spousal ages and benefit amounts.


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