In our last blog post, we discussed what individuals should consider when attempting to maximize social security benefits. When it comes to couples, however, the considerations become more complex. If you are married, you can generally choose between drawing on your own earnings record or that of your spouse — and in certain instances it is possible to switch from one option to the other. Couple those choices with the fact that there is greater uncertainty when it comes to determining joint life expectancies, and it makes it imperative that couples carefully think through their social security options.
We’ll consider the issue of how to file first as it is relatively complex. There are a couple of things you should understand before choosing your strategy, and they are:
* The amount you are to be paid in social security is dependent upon how much you earned – and by extension how much you paid in to the social security system.
* If you have earned considerably more than your spouse, it may make sense for your spouse to draw social security benefits based on your record.
* If you predecease your spouse and your social security benefit is the higher of the two, your spouse can elect to draw your social security benefit (but he or she will *not* receive both your benefit and the benefit that was previously being drawn).
* Options tend to be somewhat limited until one or both of you reach Full Retirement Age (which we defined in our last post here).
* If you have dependents who are drawing social security or would be eligible to draw social security if you or your spouse should pass away, the analysis becomes a good bit more complicated. We aren’t considering those scenarios in this article.
With the foregoing in mind, here are a few options you can pursue to maximize social security income as a couple:
File and Suspend
This strategy works best if you and your spouse are a few years apart in terms of age, and the older spouse has a much higher earnings record than the younger spouse. In this scenario, the older spouse files for social security benefits when she reaches full retirement age, but then elects to suspend those benefits. Because the benefits are suspended, they are not paid and the benefit continues to grow each year.
Just after the older spouse files and then suspends her application, the younger spouse will file for benefits on the older spouse’s benefit record. Note that if the older spouse had not filed for benefits, the younger spouse would not have been able to draw spousal benefits. However, by suspending the filing, the older spouse’s benefits continue to grow while allowing the younger spouse to begin drawing spousal benefits. There are a couple of factors that are key in this analysis, but one of the most critical is that the younger spouse must be able to earn more in benefits by drawing on his spouse’s earnings record than he would if he were drawing on his own record.
Maximizing the Survivor Benefit
When one spouse dies before the other, the surviving spouse is eligible to receive the deceased spouse’s benefit in lieu of his or her own benefit. This would only make sense if the deceased spouse’s benefit were higher. Typically, the strategy of maximizing the survivor benefit arises when one spouse is older than the other, his or her social security benefit is higher and the younger spouse is in good health and expected to outlive his or her partner. In these situations, it can make sense for the older, higher earning spouse to defer drawing social security in order to allow that benefit to grow (we discussed this strategy in our initial blog post). The benefit would then be passed on to the younger spouse as a survivor benefit should he or she outlive the older spouse.
The idea behind this strategy is to maximize your total social security income by drawing a spousal benefit once you reach FRA and then switching to your own benefit at a later age – typically age 70. In order for this strategy to work, your spouse needs have filed for benefits and you need to be full retirement age or older. Furthermore, the strategy only makes sense if your benefit will be higher than your spouse’s benefit at Full Retirement Age, but not so much higher that your spouse should be drawing benefits based on your earnings record. Although the strategy would entail earning a lower benefit earlier in retirement, if you live a long life, total benefits paid over your lifetime can be greater given the higher benefit later in retirement.
We always consider how we might maximize social security for clients, particularly when we are working with couples. The rules are complex, but understanding that complexity and how it applies to you can lead to a substantial increase in your retirement income.