Social Security missteps, part one

A few weeks ago, I received an email from a recent retiree.  He had hit the magic age of 65 and stopped full-time employment as had his wife who worked for the last few decades as a teacher.  They had done a good job saving and had a healthy portfolio size that would provide them good flexibility and growth throughout retirement.

I asked him why he decided to take a reduced Social Security benefit (filing before full retirement age) and he replied:

I decided to take the haircut in light of the notion that [my wife] will never get any Social Security due to her WEP and I wanted to extract some cash while I'm still alive and not wearing diapers :-).

Mathematically, this was a bad approach based on bad information and a lack of understanding.  Let's look at what happened to his monthly and lifetime benefits.

By filing for benefits prior to his full retirement of age 66, his monthly benefit was reduced by 6 2/3% for each year he filed early.  This is a permanent reduction and will affect his benefit for the rest of his life.  BUT, because his spouse was younger than he AND females have a longer life expectancy than males, now he has affected HER income if he predeceases her as the actuarial tables say he will.  The reality is that they had plenty of assets to support themselves between retirement and age 70 so they could have certainly waited and received their maximum possible benefit (which increases at 8% per year between FRA and age 70).

As much as I believe his early filing to be a mistake, there was a more egregious one.  They assumed that WEP would take away the Social Security benefit she earned while in the private sector before becoming a teacher.  Fortunately, there's a pretty easy calculator right on the Social Security website at https://www.ssa.gov/planners/retire/anyPiaWepjs04.html that they could have used to learn that yes, indeed, she IS entitled to her own Social Security benefit.  In fact, it came out to about $10,000 a year!  I did the calculation myself, then directed them down to the Social Security office where they were told exactly that.  One problem with Social Security is that they don't just start sending you the check once you hit FRA.  You have to ask for it.  If they never talked to me or Social Security, they may have never collected on the benefit that she earned.

I admit, I can't understand why such a complex decision with such overarching ramifications could possibly be made so arbitrarily without cautious consideration and education.   A detailed financial plan could cost a few thousand dollars, but not considering all the factors could cost hundreds of thousands of dollars over a lifetime.