Q & A
Another question on spousal benefit options and implications
Full question: I turned 63 last month and am receiving Social Security Disability benefits of $2,200 monthly. My wife is 73 and receives $1,000 Social Security monthly which covers all our expenses. My wife is in excellent health. My doctor gives me a 10- to 15-year time horizon before I need to be in assisted living or have a visiting nurse and aide if I am able to live in place and I am uninsurable for long-term care. Our Supplemental Health Insurance is comprehensive and our out of pocket health costs are covered by an Annuity income. We have about $2.6 Million in traditional and Roth IRAs. Our hope is that this amount should be sufficient to cover my necessary future medical care costs and that of my wife if her health deteriorates. Is this hope realistic? What are the pluses and minuses of me stopping and deferring my Social Security benefits at FRA and my wife choosing the Spousal Benefit from my Social Security account? What are the strategies to consider on dealing with the interaction between Social Security and the IRA’s? No one can predict the future but your considered opinion of the best options is welcomed.
Answer: Howard, based on your income, expenses and insurances, “realistic” is an appropriate word to use. The wild card is long-term care (LTC) expenses. Most LTC expenses aren’t covered by Medicare or supplemental health insurance and since you cannot get LTC insurance, you will need to pay out of pocket. If your assets are invested appropriately, I like your odds but if you need LTC services and those expenses are high enough and you live long enough, anything is possible.
With $2,200 coming in now as a disability benefit, a spousal benefit payable at your FRA will be only slightly more than her current benefit. The primary payoff for suspending your retirement benefits is the delayed credits that can accrue on your retirement benefit, up to your age 70. But, when either of you passes away, whatever your retirement benefit is at that time will be all the survivor will receive. So, for delaying to pay off at all, one of you must still be alive when you would turn 81 or so (her age 91).
As for taxes, no Required Minimum Distributions (RMD) are required from the Roth IRAs but the traditional IRAs are subject to them. You will incur taxable income on these RMDs and once your income exceeds $44,000, 85% of any Social Security payments you receive will be taxable income. If you’re already in this situation, additional withdrawals won’t affect the taxation of your Social Security benefits.
You can minimize future taxable income by withdrawing funds from the traditional IRAs or converting some of those IRA funds to Roth IRAs. The cost to do this is whatever tax you would pay now on the withdrawal or conversion.
Source: Dan Moisand – MarketWatch.com, April 11, 2014
Notice: The link provided above connects readers to the full text of the posted article. The URL (internet address) for this link is valid on the posted date; socialsecurityreport.org cannot guarantee the duration of the link’s validity. Also, the opinions expressed in these postings are the viewpoints of the original source and are not explicitly endorsed by AMAC, Inc., the AMAC Foundation, or socialsecurityreport.org.