Optimal Retirement Benefits

John and Maria are both 62 years old and considering when to begin collecting Social Security retirement benefits. John has a higher earnings history than Maria. Maria did not work for many years while raising their children and has lower lifetime earnings. They are trying to maximize their combined lifetime benefits. Which of the following strategies would likely provide the greatest combined lifetime benefit if both expect to live into their early 90s?

Both John and Maria should begin collecting benefits at age 62 to start receiving income as early as possible.
Maria should begin collecting her benefit at age 62, and John should wait until age 70 to claim his benefit.
John should begin collecting his benefit at age 62, and Maria should claim a spousal benefit immediately.
Both John and Maria should wait until their full retirement age (FRA) of 67 to begin collecting benefits.

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B is the answer.

Delaying John’s benefit until age 70 allows it to grow by 8% per year due to delayed retirement credits, significantly increasing his monthly benefit. Maria can collect her own reduced benefit at age 62 or switch to a higher spousal benefit once John claims his at age 70 (provided she is at least full retirement age). This strategy (Maria collects early, John delays) is often optimal when one spouse has a higher benefit and both expect long life expectancy.

A results in permanently reduced benefits for both and is not optimal for longevity.

C is incorrect because Maria cannot claim a spousal benefit until John starts his own benefit.

D is reasonable but does not maximize John's benefit as much as waiting until 70.

Posted in CFP® Practice Question

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