Most people are correct to think that they will be ahead financially to wait until age 66, or maybe even until age 70, to claim their Social Security benefits. But for that small cadre of retired folks who still have minor children at home, the addition of those dependents to the Social Security account can make for a whole different perspective on when to start their Social Security benefits. That’s what today’s column is all about.
Q: I am about to turn 62 years old. I retired last year. I have a 13-year-old daughter. My wife is 50 years old. She does not work outside the home. I am trying to decide if I should take my Social Security at 62 or wait until I am 66. Can you help me decide? My full retirement benefit at age 66 is estimated to be $2,200 per month.
A: As I point out many times in this column, I am not a financial planner. So I can’t really tell you what to do. But I can explain your Social Security options, and then let you decide which way to go. Normally, a financial planner would advise you to wait until age 66 to claim benefits. But in your case, because of your family’s eligibility for dependent benefits, it’s going to make a lot of sense to start your benefits at 62.
Before I go over your options, I must explain some general rules about benefits payable to children and spouses. Your daughter will be eligible for benefits on your record until she is 18 years old. Your wife is also due benefits as the mother of your minor child. However, her benefits end when your daughter turns 16.
And there is one other general rule you need to understand. Each dependent is due an amount equal to 50 percent of your age 66 rate. However, the law sets a limit as to how much money can be paid to a family with children on any one Social Security record. The rules involving this so-called “family maximum” rate can get a little convoluted. But for the purposes of this column, I’m going to use the most common numbers and say that the most that can be paid on your record is 150 percent of your age 66 rate.
So now let’s look at the number and your options.
Option One: You take benefits at age 62.
By taking benefits at age 62, you will get 75 percent of your $2,200 age 66 rate, or $1,650.
Your daughter and wife are each technically due an amount equal to $1,100 (half of your age 66 rate). That normally would mean total benefits to you and your daughter and wife of $3,850. But remember, I said the family maximum rules limits the amount payable on your account to 150 percent of your age 66 rate, or $3,300. They have to pay your $1,650 benefit first. That leaves another $1,650 to be split between your wife and daughter. In other words, they each will get $825.
So that means that you and your family will get $3,300 per month. You would continue to get that rate until your daughter turns 16. At that point, your wife is no longer eligible for benefits. From that point on, you will continue to get your $1,650. And your daughter will get her normal child’s benefit of 50 percent of your age 66 rate, or $1,100. So once your daughter turns 16, the two of you will start getting $2,750 per month.
That rate will continue until your daughter is 18. Then her benefits stop. And from that point on, you will just get $1,650 per month.
Now, let’s add up the total benefits you will get for the 48 months between age 62 and 66. You will get $3,300 per month for 36 months, or $118,800. Then you will get $2,750 per month for 12 months, or $33,000. That means the total benefits you will get between 62 and 66 is $151,800.
Option Two: You wait until age 66 to claim benefits.
You would start getting $2,200 per month. It sounds to me like your daughter will be 17 when you turn 66. So she will get benefits for one year at $1,100 per month.
This means that for the first year you will get $3,300 per month, or $39,600. After that, only you will be getting benefits. In other words, after that first year, you will get $2,200 per month, or $26,400 per year.
The obvious point is that if you take Option Two, you will be throwing away the $151,800 in benefits payable in Option One between 62 and 66. And to be just a little more precise, we have to take into account the difference in benefits under both options for that one year after age 66 until your daughter turns 18 and goes off the rolls. In Option One, you get $33,000 in benefits and in Option Two, you get $39,600 — or an extra $6,600. So we need to subtract that from the $151,800 gain in Option One.
But that still leaves $145,200 that you leave on the table by taking Option Two. Under Option Two, you do get a higher ongoing retirement benefit for yourself ($2,200 per month as opposed to $1,650). The difference is $550 per month. It would take you 264 months, or 22 years, to make up what you’d lose by not taking Option One.
Or to put that another way, you’d have to live until age 88 to come out ahead by taking Option Two and waiting until age 66 to claim benefits.
As I said at the beginning of this column, I am not a financial planner. So I can’t tell you what to do. But in your case, I think it’s a no-brainer. Option One looks awfully darn attractive. I think you’d be foolish to wait until age 66 to file for benefits.
