Dear MarketWatch,
I am 64. I retired at 63 to help watch my grandchildren. My husband is 65 and plans to retire when he turns 66.
Together we have $1.7 million in our 401(k) plans and $300,000 in cash and stocks. Our home is valued at $900,000 and is paid off.
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If my husband collects Social Security at his Full Retirement Age at age 66 years and 8 months, he will receive $3,600 and if I collect at 64 ½ years old, I will collect $1,600.
Should we wait longer to collect Social Security and live off of our 401(k) plans for two years?
The Babysitter
Dear Babysitter,
Congratulations on saving so much for your retirement — you’re already reaping the benefits by being able to retire early and help watch your grandchildren.
For many people, choosing to claim Social Security early is often an easy decision because they need the money. That does not appear to be the case here: you have robust 401(k) balances, savings outside of the retirement plans and one of the largest expenses in retirement — housing — is paid off.
You may be eager to claim Social Security, but if you can wait to do so, you will get more money. For starters, if you both wait until Full Retirement Age, you’ll get what you’re owed from all of the years you paid into the system.
But it could help you to wait even longer, if you and your husband can devise a plan for the next six years. For every year you delay Social Security past your Full Retirement Age, you get about 8%, up until age 70.
Delaying Social Security could also have perks for spouses. Spousal benefits, which you get when both spouses are alive, are maxed out at 50% of FRA (making it pointless to wait past that to try and get more money), but widow/widower benefits are 100% of whatever the benefit the other spouse got, and that includes those delayed credits.
“If you earn delayed retirement credits during your lifetime, we will compute benefits for your surviving spouse or surviving divorced spouse based on your regular primary insurance amount plus the amount of those delayed retirement credits,” according to the Social Security Administration. Basically, if your benefit includes extra money because you delayed, the surviving spouse will get that upon the other person’s death.
When you’re in a good financial position like the two of you are, it doesn’t hurt to consider the estate planning aspects of claiming Social Security.
Waiting to get Social Security benefits isn’t for everyone, even if they are financially capable of doing so. Claiming decisions should also factor in longevity and health, and someone who doesn’t expect to live long would be better off taking the money sooner rather than later so they can benefit from their years of paying into the system.
You also want to consider how much money you’ll need in retirement, and the impact that will have on your 401(k) balances. A rough guideline in the industry is the 4% rule, where you take 4% of the balance in the first year and then adjust for inflation thereafter. Some say that the rule is a bit outdated, and retirees can withdraw even less and still stay afloat in retirement, but regardless, you can use it to get an idea of where you stand. For example, 4% of $1.7 million is $68,000 — would that be enough for you in the first year of retirement? Or how much more or less would you need? If it’s a lot more, then yes, you might want to claim Social Security to offset the hit to your retirement accounts, but if it’s less, that would indicate you could wait.
You also don’t have to begin Social Security benefits simultaneously. If his benefit will be higher than yours, you could take yours first and let his benefit grow over time, up until Full Retirement Age or even after that. You have options.
Whatever you do, be happy in the fact that you’re able to make these decisions at your choosing. It is a great privilege — as is spending time with the kids!
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