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Thinking Through Your Social Security Options

Christine Benz

Christine Benz: I'm Christine Benz for 

The decision about when to claim Social Security benefits is a complicated one, and it's even more complicated for married couples. Joining me to discuss this topic is Christine Fahlund; she is a senior financial planner with T. Rowe Price.

Christine, thank you so much for being here. 

Christine Fahlund: My pleasure.

Benz: You have launched a new Social Security Benefits Evaluator tool, Christine, and before we talk about the tool and how it works, I'd like to start by talking about why Social Security is such a valuable benefit in people's retirement plans? 

Fahlund: It is something you've already paid, for starters. It's guaranteed income backed by the U.S. government that lasts a lifetime, so it serves as longevity insurance for you, and it's adjusted for inflation. So, it has everything, and you've paid for it already. So, it's something that you need to take very seriously when you make your decision as to when to take it and how to take it.

Benz: Let's talk about why you think investors really ought to give due attention to this decision about when to claim benefits? Why is it such an important decision? 

Fahlund: It is an incredibly important decision, because when you start at 62 instead of 70, you are missing out on an 8% increase in your benefit every year you wait. So, by the time you get to 70, if you were to compare the extremes of starting at 62 or taking it at 70, the difference is almost double the income for the rest of your life, increased for inflation, as you go along.

Benz: OK. So, generally speaking waiting will deliver a big payoff. 

Fahlund: Yes.

Benz: One thing that the Social Security Benefits Evaluator lets you do is, it lets you choose your goal for Social Security income, and most of the tools … certainly when I hopped on the tool, I thought well, I just want to maximize my benefit over my lifetime, and my spouse's lifetime, I want the biggest cumulative benefit. 

Fahlund: Right.

Benz: Let's talk about some reasons why someone might have another goal in mind--specifically, why someone might in fact want to start benefits at 62? 

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Fahlund: Absolutely. We didn't want to presume with this tool that maximization was the goal. We always think of a couple or individual as what are your personal goals for a particular pot of money, or what you want to do in a certain decade of your life. So, in your 60s it's very important. If you wanted to take it at 62, and each of you did, lots of people are doing that today, and that may be necessary, because you have been out of work and this is income you need right now. It could be that you're expecting an inheritance later on--maybe you are going to sell the business later on. It could be a lot of reasons why it makes the most sense for you to take it now.

Benz: One thing I sometimes hear from people is that, I'm going to take it at 62, because I want to make sure that I get my full benefit out of the system. Is that a legitimate reason to be thinking like that? 

Fahlund: We don't think so, not at all. Certainly for those 55 and older, the government keeps saying, you are going to get your benefits. So, we have to use that that as our premise.

Benz: OK. So, the tool allows you to plug in your birthdate and your spouse's birthdate, and one possible scenario or one goal that one could opt for is to maximize the payout over the lifetimes when the two partners are together. Why would someone choose that? 

Fahlund: Well, it could be for a lot of reasons. It may be that you haven't been married that long, and you want to savor every minute of it. The more income you can have to enjoy those years together, you want to make sure you do. So, it could be as simple as that.

Benz: One other possible goal that is baked into the tool is people who want to maximize benefits for the surviving spouse. Let's talk about when that should be a legitimate consideration and when that should be a goal? 

Fahlund: We think that should be a goal for just about every married couple. The fact is we don't know in each couple, usually, which one is going to die first. So, whoever is the surviving spouse might have a lot of years alone and a lot of years where they are dependent on that guaranteed income stream.

It is the survivor who receives the larger of the two benefits, but no longer receives both of the spouses' benefits. 

Benz: So, the tool actually gives you very specific strategies; if you've put in your goal and put in your information, it will suggest some of the more sophisticated strategies, like file and suspend, for example?

Fahlund: It absolutely will, and that was intentional that we make it as simple as possible for you to take action. And not only that, we will provide you with the cash flow and what it is going to look like if you take that particular action, and we think together that gives a good foundation for good conversation with your spouse. 

Benz: OK, Chris. It seems like a really powerful tool. I had fun using it and thanks for being here to talk about it.

Fahlund: Thank you, Christine. 

Benz: Thanks for watching. I'm Christine Benz for