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Social Security strategies for couples

December 23, 2007|From the Chicago Tribune

My wife and I are both 61. She is retired, and I plan to work until I am 65. We have 401(k) savings of $900,000 and owe approximately $160,000 on our home. That is the only debt we have. I earn roughly $140,000 a year. Should my wife begin taking Social Security at 62? She would be eligible for $700 per month. I read that it makes sense for a non-working spouse to begin taking Social Security at 62. What would the income tax ramifications be of doing this if we file a joint tax return?

Researchers at Boston College studied couples' optimal Social Security benefit-claiming strategies, so the material you read may have come from that study.

Although the college's Center for Retirement Research did conclude that it was often optimal for a spouse to claim benefits early and the primary wage earner to delay claiming until age 70, your situation might call for a different approach.

The center's optimal strategy works best when a spouse's lifetime earnings are at least 40% of the larger wage earner's lifetime earnings, said Alicia Munnell, director of the center.

So by claiming early and receiving at least a moderate-size benefit, the spouse maximizes the claiming time before qualifying for the full survivor benefit upon the death of the primary wage earner.

The strategy hinges on several factors, including the earnings difference and the age difference between the spouses.

Your wife's projected benefits on her work record -- $8,400 a year -- indicate that there was a big income gap between the two of you, Munnell said.

Assuming that's the case, you should both probably claim at 66, she said.

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