BUSI 688 Week 1 DB Forum 1 Example

Discussion Board Forum 1: Thread and Replies

BUSI 688 Retirement Planning, Discussion Board Forum 1 (thread and two replies)

Thread by [Student Name]

The forum topic, the clients and the classmates are composites standing in for the course's own; the benefit rules and trust fund projections come from the Social Security Administration, the benefit amounts are illustrative, and the textbook and research cited are real; the requirements follow Liberty's public course guide for BUSI 688.

Thread

The topic describes a composite married couple, both 62. She has the higher earnings record, with an estimated benefit at her full retirement age of 67 of $3,000 a month; his own benefit at 67 would be $1,500. Dalton and Dalton (2018) explain that benefits are reduced for each month a worker claims before full retirement age and increased by delayed retirement credits for each month of waiting after it, up to age 70. For her, that produces three very different checks:

The break-even point between claiming at 62 and at 70 falls around age 80, but that frame misses the household view. Whoever outlives the other keeps the larger of their two benefits. If she claims at 70 and dies first, her husband's survivor benefit would be based on the $3,720 check, not the $2,100 one, for the rest of his life. Annual cost-of-living adjustments apply to whichever amount is locked in, so the gap between the two choices widens in dollars over time. For a couple of 62, the chance that at least one spouse reaches 90 is substantial, which makes the larger survivor check worth far more than a single break-even age suggests.

Shoven and Slavov (2014) examined whether the adjustment for claiming age is actuarially fair given longer lives and low interest rates. They found that delaying is advantageous for many people, even some with mortality rates twice the average, and that primary earners with high mortality can still raise the household's benefits by waiting, because of the survivor benefit. The best reason for the higher earner to wait is often the spouse who will outlive them.

Many clients claim early because they fear the system will fail. The 2026 Trustees Report projects that the retirement trust fund will be depleted in late 2032, after which incoming payroll taxes would still cover about 78 percent of scheduled benefits (Social Security Administration, 2026). That is a serious problem for Congress, but it does not make an early claim a way to collect more.

My father claimed at 62 because he did not trust the system, and he lived to 91. My mother lived on his reduced survivor benefit for nine years. I would advise this couple to have him claim his own benefit at 67 and her to wait until 70, using savings to bridge the gap. Drawing down savings for a few years in exchange for a larger lifetime, inflation-adjusted check is one of the cheapest ways a retiree can buy protection against living a long time.

Reply to Monica

Monica, your thread advised your composite client, a 62-year-old widower with diabetes, to claim immediately because his life expectancy is below average. That is a reasonable judgment for a single person, and Shoven and Slavov (2014) found that at real interest rates closer to historical averages, single people with mortality substantially above average generally do not gain from delay. Your client's circumstances fit that finding, and his diabetes is the kind of health information a planner should weigh openly with him rather than avoid. I would only add two checks the course materials suggest. First, Dalton and Dalton (2018) explain the earnings test: if he keeps working before full retirement age and earns above the annual limit, part of his benefit will be withheld, so claiming at 62 while still employed may produce less than expected in the near term. Second, if he has an ex-spouse from a marriage that lasted ten years or more, his record could affect her benefits, which may matter to his family even if not to his own decision. On the main question, your recommendation holds up well. My grandfather, who had heart disease, claimed early and was glad of it; he collected for six years he might not have had otherwise. The difference between his case and the couple in my thread is the survivor: with no spouse depending on his record, the household view and the individual view are the same. Your recommendation is sound, and these checks would only refine it. Did your client mention whether he plans to keep working part time, which would bring the earnings test into play?

Reply to Jason

Jason, your thread argued that the couple should claim at 62 and invest the checks, because a balanced portfolio could earn more than the 8 percent a year that delaying adds. It is an interesting argument, and you laid out the portfolio math carefully, but the comparison mixes two different kinds of return. Dalton and Dalton (2018) describe Social Security as an inflation-adjusted annuity backed by the federal government, which pays for life however long that is. A portfolio might earn 6 or 7 percent on average, but with risk, and it can run out. The delayed retirement credit, by contrast, is a guaranteed, inflation-adjusted increase in lifetime income, which is far more valuable than a risky return of the same size. Shoven and Slavov (2014) concluded that delay is actuarially advantageous for a large share of people, particularly when the survivor benefit is considered. Your concern about the trust fund is understandable, but the 2026 Trustees Report projects reduced rather than eliminated benefits after the retirement trust fund is depleted in late 2032 (Social Security Administration, 2026), and any reform would likely affect benefits whether the couple claimed early or late. When my uncle claimed early to invest, the 2022 market decline hit his account in his first year, and he had to sell at a loss to cover expenses. Would you consider a split approach, with the lower earner claiming earlier and the higher earner waiting? That would give the couple some income now, reduce the savings they must draw to bridge the gap and still secure the larger survivor benefit.

References

Dalton, M. A., & Dalton, J. F. (2018). Retirement planning and employee benefits. Money Education.

Shoven, J. B., & Slavov, S. N. (2014). Does it pay to delay Social Security? Journal of Pension Economics and Finance, 13(2), 121-144. https://doi.org/10.1017/S1474747213000309

Social Security Administration. (2026). The 2026 annual report of the board of trustees of the federal Old-Age and Survivors Insurance and federal Disability Insurance trust funds. https://www.ssa.gov/OACT/TR/2026/