Savvy Social Security Insights
Retiring with an Age Difference.
If you are 10 or 15 years older than your spouse or partner, to what degree should that age gap influence your retirement planning? You will want to consider this question, for it may affect many aspects of your financial future – such as your planned retirement dates, how you decide to claim Social Security, and how you choose to invest. (1)
Your age difference will lengthen your total retirement experience as a couple. For example, the Social Security Administration projects that the average man turning 62 this month will live 84.6 years and die in 2039. The average woman turning 45 this month is forecast to live 85.5 years and die in 2057. So a hypothetical couple with a 17-year age gap would need to keep a 40-year retirement time horizon in mind if the older spouse or partner retired today, potentially including 17 years alone for the younger spouse or partner.
If you and your partner have an age gap, the two of you might need to work longer and ramp up your retirement saving. A more aggressive approach to investing may be wise. If you are the older spouse, you may want to claim Social Security as late as possible and opt for joint-and-survivor pension benefits. If you are more than 10 years older than your spouse, the calculated Required Minimum Distributions from your 401(k)s and IRAs will end up being slightly smaller than standard. (1,2)
Do You Understand the Social Security “Earnings Penalty”?
Most baby boomers know that their Social Security benefits can be reduced if they earn too much in retirement. While 76% of baby boomer respondents to a 2015 AARP survey understood this fact, 57% also thought they would never recoup those surrendered benefits. That is incorrect.
Social Security’s “earnings test” only applies before you reach Full Retirement Age (66-67 years old, depending on your birthdate). If you receive Social Security benefits before your FRA, your benefits will be reduced by $1 for every $2 in wage income or self-employment income you earn above a $15,720 yearly threshold. During the 12 months prior to your FRA, you can earn up to $41,880 without any of your benefits being withheld; $1 of your benefits will be held back for every $3 you earn above that amount.