social Security part 2
Case
Social Security, part 2(2013)
Your aging professor is married, and both he and his wife are approaching the age when they can start drawing on Social Security. They need your help to determine the best strategy regarding when each of them should start receiving benefits.
Your aging professor and his wife are both currently 60 years old. There are now two questions:
1. At what age should your professor start to collect social security benefits?
2. At what age should his wife start to collect social security benefits?
To keep the problem as simple as possible, there are three ages to choose from:
a) 62 b) 66 c) 70
The “normal” age to start receiving benefits is 66. If a person starts at age 62, they will receive a smaller than normal benefit. If a person starts at age 70, they will receive a larger than normal benefit. At the same time, starting benefits early implies that benefits will be received for more years, and starting benefits later implies that benefits will be received for a fewer number of years.
There are three forms of benefits that affect couples, and all three need to be a part of the study:
1. Benefits that a person can receive based on their own record of employment
2. Spousal benefits. One spouse can collect benefits based on their spouse’s benefit.
3. Survivor benefits. If one dies, the other person can receive monthly survivor benefits.
If your professor starts collecting benefits at age 66, he will receive a PIA of $2000 per month, based on his record of employment and social security taxes. If your professor’s spouse starts collecting benefits at age 66, she will receive a PIA of $1000 per month based on her record of employment and taxes.
Do the following:
1. Considering all three types of benefits (own record, spousal, and survivor), identify the best age for each person to begin taking social security benefits. They do not need to start at the same age. Include the time value of money,and use an interest rate of 3% to discount future cash flows.While the age at death is uncertain, consider that both people will live to their expected age at death, based on their current age and gender. What is the couple’s best strategy as a couple of when they should begin taking benefits?