Bonnie: I’ve read a lot of excerpts from your Social Security book and tried the free version of the software offered by your co-author, Larry Kotlikoff. But I still can’t figure out how to calculate the pros and cons of our particular situation! My husband is 64, I am 46, and we have an 8-year-old child. My husband is a freelancer and still able to work, although his income will likely begin to decrease soon. I am employed full-time and well compensated. My question is whether we will net more total from him filing and being able to also get benefits for our young daughter? Or, should we hold off as long as possible? How do I calculate this?
Phil Moeller: An economist would say that you should take the present value of both streams of benefits (waiting until 70 versus filing sooner and also getting child benefits) and then choose the one with the larger payoff. However, you might still be doing the math when he turns 70! (Larry likely would disagree with any statement that is so cavalier about anything to do with the dismal science he has chosen for his profession.)
A simpler way is to estimate the amount of your daughter’s annual benefit if your husband files for his own benefit when he reaches his full retirement age. This will give you a rough idea of how much you would lose if he did not file until age 70. Next, I’d look at how much his benefit would increase if he waited until age 70 to file. Assuming he lives until age 90, how much retirement money would he leave on the table if he filed earlier? Then I would compare the two figures.
Realistically, money earned today is worth more than money earned in the future (this is the basis of present value computations). So, if those four “extra” years of child benefits are at all close in total to his extra benefits from waiting until 70 to file, I’d lean toward him filing at sooner.
Because you are the higher earner and also likely to outlive your husband, your benefit will be larger than your husband’s, and you should wait until 70 to file. This further tilts the decision in favor of him filing soon, and getting benefits for your daughter. They are not trivial, by the waym and would be half of his FRA benefit. And they would last until she turns 18 or 19.
Lastly, if he does file and claims a child benefit, you will need the discipline to sock that money away for your daughter’s college needs.