Advertisement

Should you file for spousal benefits?

Spousal benefits
(Dreamstime)

Readers have many questions and I have some answers. Read on.

Q: My wife filed early for her Social Security benefits before her full retirement age. I am waiting until 70 to file for my benefits. What benefits will she receive when I reach 70?

Advertisement

A: When you turn 70 and file for your own benefits, your wife can file for spousal benefits if she wishes. But should she? Here's how to find out.

Let's assume that when she filed for her benefits, they were discounted by 10 percent because she filed early. Filing for spousal benefits would entitle her to 90 percent of 50 percent of your full retirement age benefit.

If this amount is greater than the benefit she is entitled to on the basis of her own work record, she should opt for the spousal benefit. She is entitled to whichever amount is greater.

A second advantage is available if you predecease her. In that case, she would be entitled to 100 percent of your age 70 benefit, assuming it is greater than her benefit based on her work record. Again, she is entitled to whichever amount is greater.

Q: I am several years away from retirement at age 65. What is a reasonable way to determine the amount of savings I should have to supplement my pension and Social Security.

A: The first step to take is to estimate the expenses you expect to have at retirement age. You can expect that expenses will likely increase by 3 percent per year between now and your retirement date.

Estimate your pension benefit and your Social Security benefit at that time. You can use the Social Security website to estimate your benefits at your retirement age.

When you determine your benefit, take into consideration whether you will have reached your full retirement age when you plan to retire. If not, your Social Security benefit will be discounted.

As an example, assume you expect your retirement expenses would be $7,000 per month. Assume further that the total of your pension and Social Security benefit would be $5,000 per month. That's a shortfall of $2,000 per month, or $24,000 per year.

Assuming you don't intend to work in retirement, you would need a nest egg of approximately 25 years (difference between life expectancy of 90 and retirement age of 65) times $24,000, which is $600,000.

A 4 percent return on the $600,000 would provide you with $24,000 income in your first year of retirement. You can adjust the size of this required nest egg if you believe a 4 percent return is too conservative or too liberal for your subsequent retirement needs.

I suggest you estimate the amount of a nest egg you will have at retirement age based on a conservative growth rate of your current investments as well as the amount you are now saving and the expected return.

That computation will tell you whether you are on target to reach an appropriate level of savings. If not, you can consider both an increase in saving and/or a more aggressive investment program.

For example, if you have a major shortfall, and are investing mostly in very conservative securities, you may want to increase your exposure to the stock market.

Advertisement

Q: I understand that if I sell some of the common stock I own in a specific company at a loss, I am not allowed to take that loss for tax purposes if I buy it again within 30 days. Can I purchase those shares in my IRA account within 30 days and bypass that limitation?

A: The simple answer is no. The IRS does not allow that option. You should either wait 30 days or find another option.

Your stock broker or financial adviser could suggest an alternative that will allow you make a purchase in another security that would not be considered "substantially identical."

Elliot Raphaelson welcomes your questions and comments at raphelliot@gmail.com.

Advertisement
Advertisement