Social Security Planning Tips for Married Couples

Christine Benz: Hi, I’m Christine Benz from Morningstar. Social Security claiming is fairly straightforward for single people, but it gets more complicated for married couples with dual ages and earnings histories. Joining me to discuss claiming strategies for married couples is Mary Beth Franklin. She is a Social Security expert, and she is also a contributing columnist at InvestmentNews.

Mary Beth, thank you so much for being here.

Mary Beth Franklin: I’m delighted, Christine. Thank you for the invitation.

When Should You Claim Benefits?

Benz: Well, it’s great to have you here. I want to quickly touch on single people and their claiming strategies. We often hear that single adults should wait, if they possibly can, to claim Social Security. Can you walk through the logic on that front?

Franklin: Right. If you are eligible for Social Security, meaning you’ve worked for at least 10 years and paid those FICA taxes each year, that means you would have the required minimum 40 credits—you earn four credits per year—to be eligible for Social Security. But the amount of your benefits will depend on your average lifetime earnings and most importantly, the age when you claim them.

As you indicated, for single people, it’s a pretty straightforward decision. My benefits are based on my average lifetime earnings and the age when I claim them. If I claim them at, say, my full retirement age at 67, I get 100% of the benefits that I’ve worked so hard for and paid so much for in the form of FICA taxes. And I can keep all my benefits even if I continue to work. But if I claim benefits early, say, at age 62, not only will I take a 30% haircut on my benefits for the rest of my life because I claimed five years early, but if I continue to work, I’m going to get another reduction if I earn too much money. And in 2023, too much money is about $21,000 a year.

So, for single people, I would encourage those, particularly those who are still working, to wait until at least your full retirement age to claim benefits. Now, you can get an even bigger benefit in the future up until age 70 if you wait to claim. For every year you delay claiming benefits beyond your full retirement age up until age 70, you earn an extra 8% per year. So, if your full retirement age is 67 and you claim at 70, you will receive an extra 24% in benefits for the rest of your life. That’s a pretty sweet deal. Now, for married people, the decision is a little more complicated.

Benz: Well, I suppose an exception—just sticking with singles for a second—an exception would be if someone really needs the money, of course, but also if their health isn’t that great, right?

Franklin: Absolutely. Because Social Security claiming is a very personal decision. You want to take into account not just the amount of your Social Security benefit, but your health, your marital status, and your other sources of income. Now, it’s a little tricky for single people, because, let’s say I am single and I decided to wait until age 70 to claim my benefits and I get hit by a bus at 68. I don’t have any survivors. That means no one is going to get that unclaimed Social Security benefit, and it goes back into the pot to be redistributed to other beneficiaries in the future. So, for single people, who are concerned that something might happen due to their health or an accident that they might not get to 70 to claim that big benefit, they may want to claim at their full retirement age and bank the difference.

How Should Couples Approach Social Security?

Benz: OK. That’s helpful. I want to move on to married couples and perhaps discuss a couple of common profiles of couples. So, one common one, maybe a little less common these days, is where you have an older partner who is the higher-earning person and someone who is younger and has less of an earnings history on his or her side. Can you talk about how a couple such as that might approach Social Security claiming?

Franklin: Right. That traditional couple is really what Social Security was designed for way back in 1935, when we traditionally had a single breadwinning husband, a stay-at-home wife, taking care of the kids. The idea was to create a Social Security retirement benefit when that worker retired. And then, as the Social Security program evolved, they created things like benefits for the spouse and benefits for the survivor when the worker died. In that traditional couple, I do encourage the spouse with the bigger benefit, who is often the husband, who is often older, to wait as long as possible to claim Social Security, meaning up until age 70, to create the biggest retirement benefit possible while both spouses are alive.

The reason I say that is, if the husband dies first, which is actuarially likely, then his wife will step up to the largest survivor benefit possible. While the worker, the husband, is alive, his wife is entitled to a spousal benefit that’s worth half of his full retirement age benefit. When he dies, that widow is entitled to a survivor benefit worth 100% of what that late husband was collecting or entitled to collect when he died. So, by creating the largest possible retirement benefit, it could also translate into the largest possible survivor benefit, and that should be the goal of most married couples: How do I create the largest survivor benefit possible? Now things get a little more complicated when the spouse, the wife in this example, has her own retirement benefit. Generally, the way it works is, if you’re entitled to a spousal benefit and a retirement benefit, you will get the larger of the two, but not both.

Social Security Benefits and High-Income Couples

Benz: That’s good, and that covers that type of couple. How about a couple where the ages are roughly similar, and their earnings histories are roughly similar? So, maybe let’s talk about a couple who has had high incomes, both partners throughout their lives, how might they approach Social Security claiming decisions?

Franklin: Well, there’s two ways to look at this. I know a lot of high-earning couples like to say, “Well, you know, we’re both working, we’ve got big benefits. Let’s just both wait till 70 to get the maximum benefit possible.” That can be a great strategy for retirement income. But if their benefits are similar and one dies first, it’s likely that that remaining spouse will not get a survivor benefit because you only get a survivor benefit if it’s bigger than your own benefit. So, in that scenario, let’s say both spouses have a benefit of $3,500 a month when they collect it. And the one spouse dies, the remaining spouse is not going to get a survivor benefit. It’s not bigger than her own. So, from a household Social Security income standpoint, their income just dropped by 50%.

What I like to recommend for most married couples is to still hedge their bets, have one spouse delay up until age 70 to get the biggest benefit possible, which could translate into the biggest survivor benefit possible. Having said that, the other spouse, depending if, I’m going to say she at this point, is working or not working. If she is not working, she may want to go ahead and claim reduced benefits at 62 to bring some cash into the household as a way of reducing the sting of having the other one wait until 70. And even though her retirement benefits are permanently reduced because she claimed them early, it would have no impact on her survivor benefit if she was at least full retirement age when she is widowed. At that point, she would switch from her reduced retirement benefits to full survivor benefits.

Now, if that wife in this example is working, I’d say let her wait until her full retirement age to claim Social Security benefits when the earnings restrictions go away. But the same strategy, she is bringing some money into the household while her husband waits until age 70 to collect his benefits. And in this scenario, his Social Security benefit is still likely to be larger than hers, because he collected at 70 and she at 66 or 67, and at that point, if he dies first, she will step up to this larger survivor benefit, and her own retirement benefit would go away.

Benz: Well, Mary Beth, you are always so helpful on this topic. Thank you so much for being with us today.

Franklin: My pleasure. Thanks, Christine.

Benz: Thanks for watching. I’m Christine Benz from Morningstar.