Was Our Financial Advisor Correct?

Feb 19 2017 - 7:30am

i am 59 and my husband is 62. in november of 2016, a financial advisor with a large bank recommended that i collect social security on my record at age 62 thru 66. it was also recommended that my husband wait to collect on his record until age 70. at that point (i would be age 67), i was advised to turn my ss off and then collect on my husband's record. they provided us with a beautiful chart showing all of the monthly and annual benefits until i reach age 95. however, another financial advisor has told us that we were given incorrect information.


The basic strategy that your advisor outlined is a viable option, except for one point. Once you start drawing your own retirement benefit, you can't subsequently 'turn it off' and start drawing spousal benefits instead. What will happen if you follow the advisor's strategy is that you will receive a reduced benefit rate for as long as both you and your husband are living. The rate payable on your own record would be about 27% less at age 62 than it would be if you waited until your full retirement age to start drawing. You could subsequently become eligible for an excess spousal benefit when your husband starts drawing his benefits, but you would keep the 27% cut to your own rate.

For example, say Jane's full retirement age benefit rate on her own record is $800, but she starts drawing at age 62 at a reduced rate of $583. Then, when Jane is age 67 her husband John starts drawing his retirement benefits. John's full retirement age rate is $2000, so Jane files for a spousal benefit on John's record. Jane's spousal benefit is calculated by subtracting her own full retirement age rate from 50% of John's full retirement age rate, resulting in a benefit amount of $200 (i.e. $2000/2 - $800). This $200 excess is then added to Jane's own reduced rate of $583 to give her a combined rate of $783. Had Jane waited until full retirement age to start drawing her own retirement benefits, her combined rate would have been $1000 (i.e. $800 + $200).

In the above example, if John dies before Jane, Jane would receive John's full benefit rate instead of her own rate, regardless of whether or not she received reduced benefits on her own record. So, an argument can be made for the strategy that your financial advisor recommended, but the best strategy depends on John's & Jane's maximum ages of life.

You may want to consider running the maximization software available on this website in order to make sure that you choose the best possible filing strategy.

Best, Jerry