Married couples in which both people have paid into social security have a distinct advantage when it comes to benefit payments. This advantage comes from the ability to optimize the total payments they receive over time with an appropriate combination of retiree and spousal benefits. The optimal approach is determined based on a number of factors including life expectancy, the interaction of spousal benefits, and your cash flow needs.
Note that this article focuses on married couples only because the federal government does not recognize domestic partnerships or any other non-marital arrangements.
Disregarding spousal benefits and assuming you live to the average mortality used by the Social Security actuarial tables then you would receive the same amount of total payments over time regardless of when you began taking benefits. (This also assumes you are not subject to a reduction due to other earned income). If you started taking benefits earlier you would receive a greater number of smaller payments. If you started later you would receive a smaller number of larger payments.
If you have a shorter life expectancy there is a point as which you maximize the total benefits paid by starting social security payments sooner. And as you would expect if you have a longer life expectancy you maximize the total benefits paid by starting later. In practice our financial plans are usually assume that people will live into their 90’s. So delaying receiving benefit until age 70 is the better approach if your budget prior to that allows it.
A couple can improve on this approach while also providing partial benefits at retirement by taking advantage of spousal benefits. The main approaches for optimizing retiree and spousal benefits are listed here. Which one is the best will depend on benefit amounts and the age of each person.
· Wait until Full Retirement Age (FRA)
o Claiming social security benefits before FRA (66 to 67 depending on your age) means locking in lower lifelong benefits. As mentioned earlier this may only make sense if you have a short life expectancy or have immediate cash flow problems.
o Even if your life expectancy is low, claiming early also means locking in lower spousal survivor benefits. At death the surviving spouse is eligible to receive the higher of their own benefits and survivor benefits. If the survivor benefit would be significantly higher it may make sense to delay claiming until your FRA.
o Your budget must allow you to forgo any social security income until FRA.
· Wait until Age 70
o Each spouse waits until they are age 70 until they claim and start receiving their social security benefits. The benefits are approximately 137% - 140% more (depending on your age) than if they had taken them at their FRA
o Your budget must allow you to forgo any social security income until age 70.
· Claim and Suspend:
o You start receiving a spousal benefit at FRA, and still get both of your enhanced benefits when you each reach age 70.
The older spouse
The older spouse
§ claims his benefits when the younger spouse reaches their FRA or retires, whichever is later.
§ Immediately suspends receiving benefits
o Starts taking own enhanced benefits at age 70
o The younger spouse
§ Takes spousal benefits based on the older spouse’s benefits at the same time the older spouse claims and suspends, which is also her FRA or retirement date.
§ Starts taking own enhanced benefit at age 70
o
· Claim Spousal First
o You start receiving a full benefit and a spouse benefit at FRA, and one enhanced benefit starting at age 70.
o Younger spouse takes her full benefits at FRA
o The Older spouse claims spousal benefits at the same time.
o The Older spouse claims his own full benefits at age 70
Notes:
· Claim and Suspend is not an option before reaching FRA. Until FRA, if you file you are deemed to be filing for both worker and spousal benefits. You will receive the higher of the two. You do not have the option to do otherwise until you reach FRA when you can choose which one you want
· If either person qualifies for a government pension and they did not pay into social security while earning that pension, there retiree and/or spousal benefits may be reduced . This deduction is due to the Government Pension Offset (GPO) and the Windfall Elimination Provision(WEP). In this situation the annual social security statement you receive is not accurate! A complex set of calculations is required both to determine your benefits and the most optimal approach for a couple.
· CONSULT YOUR ADVISOR BEFORE TAKING ANY ACTION! At retirement your situation and the available options should be analyzed before making any decision as the IRS may have changed the rules.
