Social Security Strategies for Couples

by William Reichenstein and William Meyer

Social Security Strategies For Couples Splash image

In this third article in a three-part series on claiming Social Security benefits, we discuss claiming strategies for married couples.

The good news for a couple is that they can often add more to their cumulative lifetime benefits than a single individual can by using a smart claiming strategy. The bad news is the claiming decision is much more complex. Much of the complexity revolves around the rules governing spousal benefits and survivor’s benefits.

The strategies in this article assume that no one besides the couple themselves can receive benefits based on either spouse’s earnings record. If children or parents can receive benefits based on the couple’s earnings record, the material presented here is not sufficient to make the claiming decision. The strategies further assume no pension is received by either spouse from work not covered by Social Security (e.g., public-school teachers, police officers, firefighters and other government employees). Finally, the strategies are based on the current promises of the Social Security system. The U.S. Congress may make changes at its discretion.

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William Reichenstein , CFA, holds the Pat and Thomas R. Powers Chair in Investment Management at Baylor University and is head of research at Social Security Solutions, Inc .
William Meyer is founder and CEO of Social Security Solutions Inc., a service that provides personalized recommendations as to when to claim Social Security benefits.


Charles M. from New York posted 4 months ago:

Let's see, I'm 57 and my spouse is 59. I figure I'll need the two+ years before he turns 62 to digest this to make an informed decision on what, if anything needs to be done then.

Our PIAs are less than $50 apart so I suspect some of the maneuvers discussed here are less relevant - and some may be even more critical.

There's no particular advantage in spousal benefits before we reach full retirement age, but it appears it may be useful to have the older claim-and-suspend at full retirement age and have the younger claim spousal from full retirement age till 70 and then convert to their own PIA with the older having started at 70 two years earlier. 'twill be much spreadsheet fun!

An article (or at least a sidebar) on AnyPIA, SSA's for-real tool (and a very complex tool) calculating benefits would be helpful. It's supposedly the same code they use in the office. It's about the only way to get an estimate of PIA if you have or are planning stopping work before claiming benefits.

P Chiaravalli from Michigan posted 4 months ago:

My retirement income is adequate (without claiming my own SS benefit) to fund my life until age 70. My main concern is longevity risk. I am 6 months older than my wife and made more income. She took her benefit at 62 and now at FRA I have taken 1/2 of hers. I will claim my own benefit at 70 and she will then claim 1/2 of mine which will be slightly more than her full benefit. This has been easy to do and seems to meet our needs. Could I have done better?

Robert Mann from Michigan posted 4 months ago:

The text states: The full retirement age for survivor’s benefits is 66 for someone born in 1945 to 1957. It increases two months per year thereafter and is 67 for someone born in 1962 or later.

My calculations show it to be 67 for someone born in 1963 or later. Can you identify the disconnect?

Bob G from Colorado posted 4 months ago:

I must question the following sentence from the claiming strategy example: "In Strategy 2, Peggy begins benefits in four years, when she turns 62, of $900 a month and Mark begins spousal benefits only at that time of $450 a month, half of her primary insurance amount".

I believe Mark's $450 should be $600, half of Peggy's PIA; unreduced because Mark has attained full retirement age. Correct me if I'm wrong!

Herbert Ng from California posted 4 months ago:

I wish this article was out when I advised my sister as when to begin her SS benefits. We decided to claim benefits at age 62, not knowing if SS would last.

If my sis dies before age 84, we made the correct economical decision. [Other factors, like budget, timing, etc., may affect your decision.] If she lives past 84, it may have been better to delay any benefits until age 66, at which time she would do a spousal benefit. From age 66 to 70, her own delayed benefit would increase 32 percent, 8 percent per year [born in 1943 or later]. After age 70 there would be no more increases. So, at age 70, she would claim benefits based on her own earnings.

Mian from Florida posted 4 months ago:

I started my SS at full retirement age about 5 years ago. My wife will start her SS next March at FRA. My current SS amount is approximately $2500 and if my wife chose to receive 50% of spousal benefits, will she get approximately $1250 Or would it be 50% OF the amounts I started with at my FRA? Her own benefits if started in March will be $1060. We are trying to decide whether she should take the restricted route and differ her own SS until she turns 70 or not?
Your response will be greatly appreciated.

Kenton Kelly from Minnesota posted 4 months ago:

Excellent series of articles on Social Security. While not light reading, I commend the authors for explaining this difficult, confusing and often misunderstood topic in such a succinct and straightforward manner.

I, too, am interested in the response to the apparent discrepancy that Bob G mentions in his previous post.

Bob G from Colorado posted 4 months ago:

The strategy of Mark and Peggy, based on their assumptions of their life expectancies, provides an opportunity to discuss some changes they might make if things change in their financial or health conditions. If Mark came to expect an earlier death, he might wish to start benefits before accumulating his maximum delayed retirement credits at age 70.

On the brighter side, suppose at age 70, Mark expects live longer than his original assumption of age 80. He has already achieved the maximum possible benefit for himself and thus for Peggy’s expected years as a widow. But Peggy, now 66, can consider suspending her payments, and accumulating delayed retirement credits herself. When she reaches 70, her resumed payments would reflect BOTH early retirement reductions, a factor of 0.75 (because she started at 62) AND delayed retirement credits, a factor of 1.32 (because she suspended). Of course, this suspension would be worthwhile only if the uplift pays back the payments foregone. The time period of the uplift is from Peggy’s age 70 until Mark’s death, because after that, Peggy’s benefit jumps to Mark’s larger amount. Mark would have to live to age 86.5 for this to break even, and the time value of money also argues against suspending (payments now are better than the same payments later).

This mid-course suspension for Peggy is probably not a great idea, but let’s suppose she does suspend at age 66, and in a couple of years she wishes she had not. No problem! She can cancel the suspension, collect a lump sum of the payments she waived, and resume the same payment. The only sacrifice is perhaps some inflation increases during that couple of years.

John Samsell from Washington posted 4 months ago:

If we listen to younger age groups such as our children and nieces and nephews that are paying our present benefits, there is concern about the stability of the Social Security System. Based on that concern, Should people take that into consideration on how long to put off their application Social Security?? ie: 66 vs 70? Do you trust the Government to do the right thing should their finances fail like Detroit, Stockton, Illinois??, 17trillion dollar debt, reduced work force to support Medicare and Social Security. Government that is paralyzed with political insecurity??? I say, If you have reached full retirement age, take the benefit now and eliminate some of the instability!!

Mark Gaines from California posted 4 months ago:

Ideally, Table 4 should include a time value of money to determine the highest cumulative lifetime benefit for each age . Its not clear from the text if it does.

Tim Soles from Texas posted 4 months ago:

My wife and I are pursuing Strategy 2 since I am five years older and have double the PIA (much like the example). However, I suggest that everyone who hasn't commited to a strategy yet make their own spreadsheet calculator based on the article (good job showing the calcs). You can then set up as many cases as you want. As in all things in life, it all comes down to when each of you perish. So, while my wife and I are pursuing Strategy 2, if we both die at age 85, it would be no different NPV(if I recall correctly when I did this calc) than if we both took benefits at FRA. In the end, what I made the decision on was that: 1)we don't really need SS to live a good life,at least until I am 70, and 2)I wanted to leave my wife a good annuity after I die, assuming average life expectancies (when she is likely to really need it).

George Bradshaw from North Carolina posted 4 months ago:

I have been told that if you start your SS withdrawals too early, say at age 65, and want the higher amount allowed at, say age 70, you can pay the full amount received to date back to the SSA and start receiving benefits at the higher level. Certainly would make sense if you expect a much longer life time than originally expected, or were not adequately advised. Is this something worth discussing further?

Jack from Ohio posted 4 months ago:

Excellent detailed article but does not take in the reality of sitting down with the uninterested or untrained social security personnel. You attempt to explain to them how you want to claim and you realize they have no idea how the system works. They keep saying the computer knows what is best for you. They cannot even explain how the computer filed for you.When you do file do not underestimate the incompetence of the social security personnel.

David Dudley from Connecticut posted 3 months ago:

Excellent article but It is missing a key point that neds to be factored in. Social Security is an annuitized insurance policy. What would havebnee n a ggod discussion is the repayment of principle verses the cash flow. I am talking about he facdt and it is in your annual statement is how much principal in your account . Since any remaining PRINCIPAL GOES BACK INTO THE POOL YOU WANT TO ENSURE THAT PICK THE OPTIMUM CASH FLOW PLUS THE CAPAITAL DRAW DOWN.

David Dudley from Connecticut posted 3 months ago:

Hope fully you will have an article when one partner is on Soc sec disability and the other is not.

Ken Owenby from Georgia posted 3 months ago:

I've read the article once, slowly and deliberately, and am in the process again of doing so. So far I have a couple of "knee-jerk" reactions. As an investor, I'm interested and intrigued that couples should adopt a "strategy" in hopes of maximizing their social security benefits. However as a citizen and a taxpayer, I think this highlights what is wrong with the system. The average couple should not have to hire a financial consultant or resort to complicated spreadsheet or software calculations just to determine how to draw social security. I would speculate thousands of couples have probably adopted the "wrong" strategy in collecting their benefits, due to the complex nature of the current system. Although it might be to my detriment, I would advocate reform to simplify the process. People that have worked most of their adult lives should draw on their own record, with the provision that when one spouse dies a change can be made if that's beneficial -- period. Also, I had a though similar to David Dudley's. Although social security is technically a tax and cannot be thought of as an "investment", I too am concerned with getting out what I've put in. At retirement I'll probably have my own spreadsheet set up to track my annual "return" in relation to what I've put in over my working life!

Mark Landt from Colorado posted 3 months ago:

The X-factor in all of this is that no one knows how long they are going to live. Actuarial tables are fine, but they mean nothing if your body decides not to follow them. After 40 years in medicine, I have seen a lot of people not follow them.

A Igra from California posted 2 months ago:

The "free spousal benefit" is much more clearly explained in the following-- see url.

I wish that AAII had made such a clear explanation available to its members.
The authors have focused on complexities with social security decision-making. They fail to highlight some straight-forward expositions-- of interest to almost any married couples ready to retire and deal with social security decisions.

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