Ken and Barb: Two Claiming Decisions, One Survivor Benefit

Ken's decision is the lever; Barb's is a rounding error by comparison - but both should be reasoned from the survivor benefit.

Ken.

• Claiming at 68: 108% × $2,900 = $3,132/month.
• Claiming at 70: 124% × $2,900 = $3,596/month.
• Difference: $464/month, or $5,568/year. Waiting two years forgoes 24 × $3,132 = $75,168.
• Simple breakeven: $75,168 ÷ $5,568 = 13.5 years, i.e. age 83.5. COLA treatment is symmetric, so it does not change the arithmetic much; the real discount rate does, and it argues slightly for claiming earlier.

But breakeven is the wrong frame for a married couple. When Ken dies, Barb receives the higher of her own benefit or 100% of Ken's benefit, including his delayed retirement credits, for the rest of her life. The $464/month difference is therefore not a single-life annuity - it is a joint-and-survivor, inflation-indexed, government-backed annuity priced at the cost of two years of forgone checks. With Barb's mother alive and healthy at 95, the expected payout period on the survivor leg is long. Ken's own family history is exactly why this matters: he is the likely first death, and his benefit is her longevity insurance.

Barb.

• At 62 her own benefit is 70% × $1,050 = $735/month.
• At 67 it is $1,050/month.
• Spousal: 50% of Ken's PIA = $1,450, reduced for claiming before her FRA. She cannot file a restricted application (born after January 1, 1954), so she must take her own benefit to get any spousal top-up. When Ken files at 70 she will be 66, one year short of her FRA, so the spousal top-up will be modestly reduced - roughly $1,330–$1,450, subject to confirmation from SSA.

Recommendation: Ken delays to 70. Barb's own benefit is small and will be superseded by the survivor benefit if Ken dies first, so claiming her own at 62 is defensible if the household needs cash flow; claiming at 67 is better if the portfolio can bridge. The size of her benefit is not the deciding variable - the survivor benefit is.

The window. Ken's RMD age is 73. The conversion window is roughly ages 68–72, and the best sub-window is 68–70, before Ken's Social Security begins and makes up to 85% of it taxable inside the same brackets.

The binding constraint is not the tax bracket - it is IRMAA.

• IRMAA uses MAGI with a two-year lookback. For a married couple the first threshold is about $206,000 of MAGI. Crossing it raises both spouses' Part B and Part D premiums two years later, and the surcharge is a cliff, not a phase-in.
• The top of the 22% bracket (about $201,000 of taxable income plus a ~$32,000 standard deduction for a couple both 65+) implies gross income near $233,000 - higher than the IRMAA threshold. So the IRMAA line binds first at roughly $206,000 of MAGI.

Sizing the conversion.

• With no Social Security and no RMDs, ordinary income is near zero. Conversions up to about $200,000 of MAGI are available each year.
• Do not convert the whole $1.05M. Reserve traditional IRA balance for three purposes: QCDs after 70½ (up to $105,000 per year, excluded from income and therefore also from IRMAA), the standard deduction and low brackets in late-life years, and a possible charitable bequest.
• A reasonable target is $100,000–$150,000 per year, reviewed annually.

Pay the tax from the taxable account, not from the conversion. Withholding from the IRA reduces the amount that lands in the Roth and is the most common execution error.

The unstated reason this matters most: the widow's penalty. If Ken dies first, Barb files single, with roughly half the bracket widths and the same IRA. Conversions at 22% now are cheap insurance against 24%+ on the survivor, and against ordinary-income rates for the children on inherited IRA distributions under the 10-year rule.

Sequencing, with a reason for each step.

1. Taxable account first, during the conversion window. Spending from taxable rather than from the IRA preserves conversion room inside the IRMAA and bracket ceilings. Within the taxable account, spend the highest-basis lots first and leave the lowest-basis lots untouched - those are the shares that will get a step-up at death. Do not use average cost blindly.
2. Traditional IRA second, beyond the conversion amount. If spending needs exceed what taxable can supply, pull from the IRA up to the top of the 22% bracket - the marginal cost of that dollar is the conversion you are not making, so treat the two decisions as one.
3. Roth last. No RMDs, no tax, best asset for a large one-off year (long-term care, a roof, a car) and the best asset to leave to heirs.

QCDs. Starting at 70½, Ruth's - Ken's - IRA can distribute up to $105,000 per year directly to charity. The distribution is excluded from gross income entirely, so it satisfies the RMD and keeps MAGI down for IRMAA and for the taxation of Social Security. If they are charitably inclined, a QCD is strictly better than taking the distribution, reporting it, and deducting it.

Trigger point to put in the file: if Ken dies first, Barb should revisit everything within 90 days. She inherits the survivor benefit, files single in the following year, and the year of death still permits a joint return - which is often the last and best opportunity for a larger conversion.