Your Money: Social Security Strategies for Couples

Your Money: Social Security Strategies for Couples

It’s a new year, and that means a new cohort of people are eligible for Social Security. Some elect to begin taking benefits at 62, the earliest age allowable.

While it may sound good to take the money as soon as it’s available, that’s often not the best option. The age at which you apply affects the amount you get. Most of the time, the math works out better for those who wait at least until full retirement age, if not longer.

But for married couples, it’s worth taking even more time to consider the Social Security options. When spouses plan together, it can mean significantly more dollars flowing into the household.

For example, if you’re married, it may be advantageous to take Social Security based on your spouse’s earnings record, if he or she was the higher earner.

It can seem a little confusing at first, but one basic and often-used strategy is called “File and Suspend.” An individual is entitled to receive the greater of either his or her own benefit or 50 percent of what his or spouse can claim at full retirement age.

Here’s a scenario. Say a married person has reached full retirement age, but would like to let his or her benefits grow until age 70. But there is a way to bring more income into the household via the file and suspend strategy. This is most often used in a situation where one person in the couple has lower lifetime earnings, and would receive a higher benefit by taking half of his or her spouse’s benefit.

The file-and-suspend strategy is most commonly used when one spouse has much lower lifetime earnings, and thus will receive a higher retirement benefit based on his or her spouse’s earnings record than on his or her own earnings record.

Using this strategy can potentially boost retirement income in three ways:

  • The spouse with higher earnings who has suspended benefits can accrue delayed retirement credits at a rate of eight percent per year (the rate for anyone born in 1943 or later) up until age 70, thereby increasing his or her retirement benefit by as much as 32%.
  • The spouse with lower earnings can immediately claim a higher (spousal) benefit.
  • Any survivor’s benefit available to the lower-earning spouse will also increase because a surviving spouse generally receives a benefit equal to 100 percent of the monthly retirement benefit the other spouse was receiving (or was entitled to receive) at the time of his or her death.

Here’s a hypothetical example. Leslie is about to reach her full retirement age of 66, but she wants to postpone filing for Social Security benefits so that she can increase her monthly retirement benefit from $2,000 at full retirement age to $2,640 at age 70 (32 percent more).

However, her husband Lou (who has had substantially lower lifetime earnings) wants to retire in a few months at his full retirement age (also 66). He will be eligible for a higher monthly spousal benefit based on Leslie’s work record than on his own─$1,000 vs. $700.

So that Lou can receive the higher spousal benefit as soon as he retires, Leslie files an application for benefits, but then immediately suspends it. Leslie can then earn delayed retirement credits, resulting in a higher retirement benefit for her at age 70 and a higher widower’s benefit for Lou in the event of her death. File for one benefit, then the other.

Another strategy that can be used to increase household income for retirees is to have one spouse file for spousal benefits first, and then switch to his or her own higher retirement benefit later.

Once a spouse reaches full retirement age and is eligible for a spousal benefit based on his or her spouse’s earnings record and a retirement benefit based on his or her own earnings record, he or she can choose to file a restricted application for spousal benefits, then delay applying for retirement benefits on his or her own earnings record (up until age 70) in order to earn delayed retirement credits.

This may help to maximize survivor’s income as well as retirement income, because the surviving spouse will be eligible for the greater of his or her own benefit or 100 percent of the spouse’s benefit.

This strategy can be used in a variety of scenarios, but here’s one hypothetical example that illustrates how it might be used when both spouses have substantial earnings but don’t want to postpone applying for benefits altogether.

Liz files for her Social Security retirement benefit of $2,400 per month at age 66 (based on her own earnings record), but her husband Tim wants to wait until age 70 to file. At age 66 (his full retirement age) Tim applies for spousal benefits based on Liz’s earnings record (Liz has already filed for benefits) and receives 50 percent of Liz’s benefit amount ($1,200 per month). He then delays applying for benefits based on his own earnings record ($2,100 per month at full retirement age) so that he can earn delayed retirement credits.

At age 70, Tim switches from collecting a spousal benefit to his own larger worker’s retirement benefit of $2,772 per month (32 percent higher than at age 66). This not only increases Liz and Tim’s household income but also enables Liz to receive a larger survivor’s benefit in the event of Tim’s death.

Every situation is unique, so these strategies may not be appropriate for all couples.

When deciding when to apply for Social Security benefits, make sure to consider a number of scenarios that take into account factors such as both spouses’ ages, estimated benefit entitlements, and life expectancies.

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.