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The 'Split Strategy' for Social Security Filing

Adam Zoll

Adam Zoll: For Morningstar, I'm Adam Zoll.

For married couples nearing retirement, knowing when to claim Social Security and how to coordinate those benefits can be a real challenge.

Here to talk about some strategies is Christine Fahlund. She's senior financial planner for T. Rowe Price.

Christine, thanks for being with us.

Christine Fahlund: Thank you, Adam.

Zoll: When people look at this Social Security decision, sometimes they look at one extreme or the other. What if, for a married couple, both spouses claim at 62, because they want the money today, or if they both delay until 70, because they want to try to maximize their benefits. But there are flaws with both those decisions, you say.

Fahlund: That's right. If both start at 62, then the benefit that the surviving spouse is going to receive is going to be very small, relatively speaking. If you both wait until 70, the benefit for the surviving spouse is going to be as large as it can be; however, many of our investors don't want to wait until 70 to retire. So, that's why we started, at T. Rowe Price, looking at alternative strategies other than those two extremes.

Zoll: Waiting until you're 70 also requires you to either continue working, possibly beyond when you want to stop, or tapping into your retirement nest egg, which is not a desirable thing to do either.

Fahlund: That's right, exactly. Most folks don't want to wait until both of them reach age 70--let's face it.

So the compromise, as we see it, is what we're calling a split strategy. That means the higher earner waits until age 70, and that means the surviving spouse is going to get the maximum amount possible. But with the other spouse, the lower-earning spouse, start taking that benefit when you actually want to retire.

And when you do that, you're going to have some benefit from Social Security, and the rest you're going to receive from withdrawals from your portfolio. But by having the lower-earning spouse take benefits early, you've provided a cushion, so the amount you have to withdraw from your portfolio is less, and long term, that's you want to minimize the amount you have to withdraw early-on.

Zoll: And there's also an advantage because the higher earner can actually start drawing benefits at full retirement age.

Fahlund: That's right. There is something called spousal benefits, where the lower earner has already started filing for benefits, and now the higher earner, the one who is going to wait until 70, actually files and restricts his application to spousal benefits, and gets four years of what might be around $10,000 or $12,000 a year, then switches over to their own at age 70, which will be significantly larger.

Zoll: So, you don't necessarily have to have one spouse taking at 62, or potentially as early as 62, and the other waiting until 70. That spouse who would be waiting until 70 can actually start drawing some benefits at their full retirement age and not have to wait another three or four years.

Fahlund: That's right. Assuming the lower earner has already started taking his or her benefits.

Zoll: This is such a complicated decision for married couples about when to take these benefits, how to coordinate them. Are there any tools that you think are particularly useful or strategies for how people can go about trying to make this decision?

Fahlund: Well certainly work with a financial advisor. But I'm glad you asked, because T. Rowe Price has developed a tool called the Social Security Benefits Evaluator. It's free on our website,, and you can go there and with your spouse enter what-if scenarios, look at what your goals are for Social Security. And we will show you strategies to use to achieve that particular goal. And included there is the minimum strategy we talked about at 62, the maximum (both at 70), and the split, which is on there as well.

Zoll: This decision about when to take Social Security is on the minds of many people who are nearing retirement. There are lots of moving parts to keep in mind, and I think these strategies you've outlined today will be of great interest to a lot of our viewers.

Thank you for being here, today.

Fahlund: Thank you, Adam.

Zoll: For Morningstar, I'm Adam Zoll. Thanks for watching.