Ordinarily, I would urge people to hang on until theyâre 70 before claiming Social Security, especially if they are healthy. The rise in the cost of living will eat into your income over 30 years. Whatâs more, you and/or your wife may require long-term care. But you and your wife have more than 40% of your total monthly income left over after all your essential expenses are paid. Your wife will benefit from Social Security spousal benefits while you are both living, and survivor benefits if you die before her.
Given that you have been married for 10 years, your wife would qualify for 50% of the value of your Social Security, even if she did not work and/or only worked for a limited time. She will get 100% of her Social Security benefit at full retirement age, which is 67 for anyone born in 1960 or after, and she would receive a lesser amount if she claimed at any time from the age of 62 until full retirement age. If she waits until 70, your wife would receive roughly 8% more per year.
Two years of expenses in cash are often recommended for retirees, but Iâm waving an amber flag: You still may be leaving yourself a little stretched in case you need money for maintenance on your home or other unexpected expenses. Most retirees with IRAs and/or 401(k)s want to have a cash cushion to avoid drawing on their investment accounts in bear markets like those of 2000-2002 (tech bubble) and 2007-2009 (subprime mortgage crash).
You wonât be worrying about the ebbs and flows of the stock market like the millions of Americans nearing retirement age with a 401(k) or IRA, given that you have a guaranteed, fixed military and civil-service pension. Thatâs a huge weight off your minds, and should give you both confidence when you finally decide to hang up your work boots and enjoy having all your time together, which I hope includes travel and discovering new hobbies.
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The pros of a military pension
For those who will be drawing on investments, T. Rowe Price recommends retirees have a portfolio composed of 60% stocks and 40% bonds, which recovered from the aforementioned bear markets within two years. âThe exact amount you want to have also depends on your risk tolerance and the amount you have saved,â it adds. âAnother advantage of taking a balanced approach is that during a bear market stocks and bonds are rarely in decline at the same time.â
Thereâs a lot to be said about the benefits of a military pension on your investing strategy and peace of mind. âHaving more guaranteed income means you wonât have to withdraw as much money from your investments,â according to First Command, a broker-dealer based in Fort Worth, Texas. âThat may affect how you choose to allocate those funds, potentially allowing you to focus less on short-term liquidity and more on long-term growth.â
âYour military retirement income may also give you more options when it comes to constructing a budget,â it adds. âOne approach to consider is using guaranteed sources of income â like a military pension and Social Security â to pay for your fixed expenses, and using the income generated by your investment portfolio to pay for discretionary expenses. The idea is simple: to match fixed expenses to fixed sources of income and variable expenses to variable sources.â
Of you and your wifeâs three main sources of income â guaranteed (pensions), variable (investments) and one-off (inheritance or lump sum payment from a former employer) â your biggest source, happily, is guaranteed. Thatâs a nice place to be. âIf your anticipated expenses significantly exceed your anticipated income,â First Command says, âit might be a sign that you need to make adjustments to your goals or push back your planned retirement date.â
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Claiming Social Security early
But hereâs a recap so you know whatâs at stake by claiming Social Security early. You get 100% of your Social Security benefit at full retirement age, which is 67 for anyone born in 1960 or after, and you receive a lesser amount if you claim at any time from the age of 62 until full retirement age. If you wait until age 70, you receive roughly 8% more per year. Some advisers say it can work out roughly the same whether you start taking your benefits at 62 or at 70.
As you suggest, your wife, even if she has no work record or a low benefit entitlement on her own work record, is eligible to receive one-third to one-half of your Social Security benefit while you are both living, according to the Social Security Administration. Survivor benefits are more generous. âA widow is eligible for between 71% (at age 60) and 100% (at full retirement age) of what the spouse was getting before they died.â You can learn more here about such benefits.
The financial argument suggests people should delay their Social Security benefits as long as possible, especially if they are in good health, as you seem to be. Virtually all workers between 45 and 62 should wait until beyond 65 to collect Social Security, according to this working paper from researchers at Boston University and the Federal Reserve Bank of Atlanta. More than 90% of people should wait until they reach the age of 70, yet only 10% appear to do so, they added.
To put that in context for your retirement: Claiming Social Security early reduces household lifetime discretionary spending by $182,370 for the median worker nearing retirement, the paper concluded. âOptimizing would produce a 10.4% increase in typical workersâ lifetime spending,â the researchers wrote. âFor one in four, the lifetime spending gain exceeds 17%. For one in 10, the gain exceeds 26%.â But not everyone has a $5,100 combined pension.
The longer you can wait, the better. Thereâs no great rush to retire tomorrow. That would seem to make a powerful case for waiting to claim your Social Security benefit, but thatâs not necessarily true for everybody,â First Command adds. âFor those with health issues, it may make more sense to claim their benefits early. And those who need Social Security to retire may place a higher value on being able to quit working while they are still relatively young.â
You both know your own lifestyle. If you feel 100% ready, go for it.
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Previous columns by Quentin Fottrell:
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