How Married Couples Can Maximize Social Security Income

Christine Benz: Hi, I'm Christine Benz for Morningstar.com. Social Security planning for couples can be complicated, but it can also be lucrative. Joining me to discuss some couples strategies for Social Security is Mary Beth Franklin. She's a contributing editor at InvestmentNews, and she's also the author of a ebook about Social Security planning.

Mary Beth, thank you so much for being here.

Mary Beth Franklin: Thanks, Christine. I love talking about Social Security.

Benz: I know you do. Social Security planning gets pretty complicated, especially when you have married couples. I'd like to go through a few different profiles and discuss strategies that might make sense for people with varying earnings histories.

Let's discuss what you call Ozzie and Harriet, the couple where you've got maybe one stay-at-home spouse with no earnings history in his or her name, and then you've got the other spouse who has been the main earner in the family. What strategies might that contemplate?

Franklin: To qualify for Social Security benefit to start with, you need to have essentially 10 years of work history. But if you are married to someone who is eligible for Social Security benefits, then you are, too, just by the fact of being married.

Let's say we have Ozzie and Harriet. Harriet has stayed home raising the kids her whole life. She has no Social Security benefit on her own record, but she can collect as a spouse. The only problem is her husband has to collect first to create that spousal benefit. If he doesn't collect, she can't get anything. Maybe he has listened to this discussion and knows the value of delaying up until age 70 to get a benefit. But that means she can't get anything.

But at 66 Ozzie could file and suspend, telling Social Security, "I'm filing for the purpose of triggering benefits from my spouse. Give her, her benefit, and let mine keep growing, until it's worth more later."

If she is also 66, she would collect a full spousal benefit, which is worth half of his amount. If she is younger, as young as age 62, she can get a spousal benefit, but it is going to be reduced.

Benz: Let's discuss a couple where there is an earnings record for both couples, so they both have a Social Security record, but one part of the couple earns substantially more than the other. What sorts of strategies might they consider?

Franklin: Again, we're assuming they are close in age. And because this is one of the magic strategies, this is the other one called filing a restricted claim for spousal benefits only; you must be 66 to do this. Let's assume for this dual-income couple, maybe the wife was a schoolteacher, and she is sick of these kids. At 62 she's just her taking her benefit; she's retired.

The husband [when he turns] 66 could say, "Well, I want my benefit to keep growing, but now that I'm 66, I can say to Social Security, 'I want to restrict my claim to spousal benefits only. That means, give me half of what she's getting, while my own benefit keeps growing.'"

Now what's really interesting about this, in this scenario, we said, she took her benefits early, so her benefits are reduced. But as a spouse, his benefits are based on half of her full-retirement-age benefit. So even though her benefits are reduced, he's going to get half of her full benefit. He will collect them for the next four years, and when he turns 70, he'll switch to his own retirement benefit that's now worth 132% of his full retirement age benefit. It's a very powerful strategy. Again, it's getting some Social Security income into the household early and a bigger bounce later.

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Benz: How about what you call the power couple? So you've got two couples, both of whom have very strong earnings histories throughout their lifetimes. How might they think about claiming benefits?

Franklin: The power couple boast substantial earnings history. I'm assuming they're the same age. They can exercise a combo strategy, and let's say how this would work. Let's say they're both entitled to benefits of $2,000 a month when they turn 66. The husband at 66 could say, "I want to file and suspend. Don't give me anything. Let my benefits keep growing for four years, but I will trigger benefits from my spouse."

The spouse who is also 66, says, "Wait a minute, now that I am full retirement age, I want to restrict my claim to spousal benefits only. Give me half of his suspended benefits."

In this scenario, he would get nothing for four years. She would get half of his benefit, $1,000 a month for four years. That's $12,000 a year; $48,000 over four years. And then at 70, they would both switch to their larger benefits which have now increased by 32%. Now look at these numbers. Their benefits at 70, they would each collect $2,640 a month, times two people, times 12 months a year. That's over $63,000 in guaranteed cost-of-living adjusted Social Security benefits for the rest of their lives. That's real money.

Benz: You have clarified a couple of times in the previous examples about people of similar ages. Let's talk about how an age disparity can throw another wrench into some of these strategies and the strategies may not apply.

Franklin: Exactly. When you have a wide age spread of more than four years, let's say, maybe a husband is 66 and he's married to a 50-year-old woman. Well, she is too young to collect retirement benefits. She must be at least 62 to collect retirement benefits. So these strategies are not going to work.

But there are two exceptions. If he dies, she can collect survivor benefits as early as age 60, or if together they have a young child, once the husband claims benefits, the child could get benefits and the wife as the care-giving parent could also get a benefit regardless of her age. So while the retirement strategy may not work for a wide age span, sometimes dependent benefits can work.

Now let's say you flip it. Let's say you've got a married couple where the nonworking wife is the older spouse. Frankly, there is not a lot you can do. She can't claim a benefit until her husband does. He is younger than she is. Frankly there is not a strategy to help them. That's when they need to work with their financial advisor and figure out other ways to generate retirement income. Social Security is not going to be the solution.

Benz: I'd like to touch briefly on same-sex couples and Social Security planning. There have been some new developments in this area. Let's talk about how things have changed and how same-sex couples may in some cases be able to avail themselves to some of these strategies.

Franklin: Absolutely, this is a dynamic area. Last year, when the Supreme Court struck down the Defense of Marriage Act, it allowed Social Security to start issuing the same benefits to same-sex couples that any other married couple could get in terms of spousal benefits or survivor benefits. But the caveat was only those legally married same-sex couples who reside in a state that recognizes their marriage are extended these privileges.

Now legislation has been proposed on Capitol Hill to extend it to wherever they live as the sponsor says, your ZIP code should not dictate whether you get Social Security benefits or not. So, stay tuned, I think if you are in a situation where you are in a same-sex marriage, where you were legally married but you are living in a state that doesn't recognize that, and you are of retirement age, go ahead and file for benefits just to get them on the record. You won't be granted any benefits as a spousal or survivor right now, but it's possible you could be [granted benefits] in the future and you would have established your filing date.

Benz: So there is a benefit to establishing that filing date?

Franklin: Exactly. Because this is also under review by the Justice Department, so what has been proposed on the Hill, could actually come about by administrative edict, we don't know. So, it's important to establish your date with the Social Security Administration.

Benz: Mary Beth, so many important issues here. Thank you for shedding some light on them.

Franklin: Thanks for giving the opportunity to talk about it. I really appreciate it.

Benz: Thanks for watching. I'm Christine Benz for Morningstar.com.