When to Take the Money (Social Security) and Run

This is a follow up of an original article, “Don’t Do It,” dated November 20, 2007, and “The Benefits of Delaying Retirement,” dated yesterday. In both articles, I made the case that taking benefits at age 62 is usually a mistake. Today, we’ll cover the exceptions. After a lot of reading on the topic I have been able to come up with three, two fairly common ones and one quite a bit more obscure:

Exception #1 – Shortened Life Expectancy. I was going to say illness for this one but a "life expectancy" test is really more accurate, because it might include family medical history as well. I indicated yesterday that if you run the numbers, you can come up with a breakeven date (often in the late 70s) beyond which you are better off for having waited. It stands to reason then that if you have reason to believe that you won’t make it to that date, you are better off taking what you can get as soon as you can get it.

Exception #2 – REAL Financial Need. I can’t emphasize the word “REAL” here strongly enough. I know there are a lot of legitimate needs out there, but at the same time, our culture has made an art form (it’s called “advertising”) out of convincing us that our wants are really needs. So be there are tons of rationalizations that can be made here.

I am reminded of my Italian grandmother whose inheritance was left in what is known as a “spendthrift trust” by my financially savvy Italian grandfather. All she had to do to get the money was to convince Grampa’s lawyer that she NEEDED it. As I look back, some of her letters to the lawyer for money were pretty laughable. And oh, did she heap Italian curses on that poor man when he turned her down! But I digress…

Exception #3 – Spouses with a Large Age Difference. As I said in the intro, this one is a little more obscure. And perhaps I really should say “large life expectancy difference” here, so this works especially well with an older husband and younger wife, because the age difference simply expands the number of years that she will probably outlive him anyway. And it helps if the older one has higher income as well. The reason this works is that when one spouse dies, the other will receive the higher of either their own benefit or their widow(er) benefit, which is based on the spouses income.

So in the case of an older higher income husband with a younger wife, the one who should take the early benefit here is the younger wife, because if he dies “on schedule,” her benefit will step up to a percentage of his and wipe out the discount she was assessed for drawing funds early.

In either of the above exceptions, some cases have some tough borderline calls. Here is where it pays to have a good friend/mentor/financial planner/life planner in your corner who can ask you the tough questions, and whom you can trust to be honest with you. And of course, your friends, including yours truly, at http://www.platinumyears.net/ are always willing to throw in their two cents worth as well.

We’re going to make sure that you at least are well aware of the benefits you may be giving up.

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