The biggest mistake married couples make in deciding when to take their Social Security benefits, is they view the decision as if they were single. In When to Take Social Security for Singles we discussed breakeven age. For marrieds, looking at the Social Security decision in terms of single life expectancy and breakeven age is a giant mistake.
Marrieds must look at joint life expectancy and must factor in spousal and survivor benefits to make the most beneficial claiming decision. Here are the relevant factors to keep in mind when deciding when to take Social Security as a married couple.
1. Eligibility For Spousal And Survivor Benefits
A married person may claim benefits on his/her own earnings record, but may also claim a benefit on his/her spouse’s record, called the spousal benefit. The spousal benefit, if claimed at FRA (full retirement age), is equal to 50% of the spouse’s PIA (Primary Insurance Amount - the amount you get at your full retirement age). An individual may claim spousal benefits at age 62 or later, with a monthly reduction of the full benefit for every month claimed before FRA.
An individual may also claim survivor’s benefits on a deceased spouse’s earnings record. It is equal to 100% of the deceased spouse’s PIA if claimed at the survivor’s FRA. A survivor may claim reduced benefits as early as age 60, or increased benefits by letting the survivor benefit accumulate delayed retirement credits. When both spouses are receiving benefits, upon the death of the first spouse, only the higher of the two benefit amounts being received continues as a survivor benefit. This means upon the death of the first spouse, the survivor will permanently lose the lower benefit amount as a source of income.
Learn more: Social Security Survivor Benefits for a Spouse.
2. Impact Of Spousal And Survivor Benefits On Delaying Benefits For A Two-Earner Married Couple
There is an advantage to having a spousal benefit for a two-earner married couple. The highest wage earner may claim spousal benefits upon reaching FRA, leaving the benefit based on his/her own record to accumulate delayed retirement credits through deferral. This higher earning spouse then switches to their own worker benefit at about age 70. This scenario assumes the lower earner files for their a worker benefit based on their own earnings record between age 62 and their FRA.
This strategy locks in a higher survivor benefit for whichever is the longest spouse to live. When the survivor’s benefit is taken into account, a two-earner couple may find that it’s advantageous to delay benefits for the higher earner and start collecting benefits early for the spouse with the lower monthly payment.
Then at the death of the higher earner, the lower-benefit spouse will switch to the higher survivor benefit amount. In other words the decision to delay the higher earner’s benefit is based on the lifetime of the second spouse to die. This maximizes lifetime cumulative benefits for a couple where one spouse may expect to outlive the other. It is equivalent to purchasing a second-to-die or joint-life annuity.
Similarly, the decision as to when the lower earner should begin claiming benefits is the lifetime of the first spouse to die. Benefits based on the lower earner’s record will only last until the first spouse dies.
3. Taxes on Social Security
Another factor overlooked by singles and marrieds alike is the impact of taxes. Retirement income needs to be viewed on an after-tax basis. In his book, A Social Security Owner’s Manual, Jim Blankenship, CFP®, provides a great example in which he shows the after-tax results of taking Social Security early and IRA withdrawals later verses doing the exact opposite, which would be delaying Social Security and instead using IRA money early. The result: $64,000 more after-tax income and $179,000 more in the bank after 28 years in retirement. This isn’t chump change. Taxes matter.
4. Don’t Forget About the Earnings Test
If you plan on working between age 62 and your FRA then wait until your FRA to begin benefits. Why? The earnings test affects you if you continue to have earned income AND receive Social Security benefits before you reach your full retirement age. In such a case, your Social Security benefits will be reduced if your total earnings exceed the annual limit. If you have some months where your earnings are high enough that you are not considered to be "retired" than your benefits may be re-calculated when you reach your full retirement age, but it could take 13 - 14 years to get back the amount that was withheld.
5. Calculate, then Claim
There is no reason to guess about the best time to take your Social Security benefits. Online Social Security calculators will do the number crunching for you and your spouse, and show you which claiming strategy will result in the most lifetime benefits for a married couple. There is no way I would even consider recommending a Social Security claiming strategy for a married couple without running their scenarios through at least one online Social Security calculator.
Additional research - article written by Brian Duvall, edited by Dana Anspach, content based on research that can be found at Social Security research.