Maximizing Your Spousal and Survivor Social Security Benefits

Discovering the link between Social Security spousal benefits within a couple and breaking down the consequences of deciding when each person starts taking it.

Managing your Social Security as a couple provides opportunities to maximize your available retirement income in a way that an individual cannot. In this episode of “Retirement Revealed” I’m going through an example based on a listener question to show how the spousal and survivor benefits work for Social Security, including how the smaller benefit is impacted by each decision the couple makes.

Here’s the question this episode is based off of: 

“I’ll be 59 this year. My wife is seven years younger. She mostly stayed at home with the kids. My current thinking is that I take Social Security at full retirement age, 67. She takes her Social Security at 62, then at 67, I think she could switch and take her spousal benefit and receive more money than her own benefit. At 62, her total amount would be half of mine. Does that make any sense?”

The reason I like this question so much is that it requires us to understand the nuances of Social Security rules and play out different scenarios to figure out what makes the most sense for this couple–and this logic applies to any couple in a similar situation. Let’s break it down.

Understanding Spousal Benefits

First, it’s essential to understand that the concept of “file and restrict,” where someone could file for Social Security and restrict it to a lower amount, allowing their own benefit to grow, is no longer available. This option was phased out eight years ago. What we have now is something called “deemed filing.”

Deemed filing means that when you apply for Social Security benefits, you are essentially applying for all benefits you are eligible for at that time. So, if your spouse has already filed for Social Security, and you apply at age 62, Social Security will automatically compare your own benefit with your spousal benefit and give you the higher amount.

Will His Plan Still Work?

The plan to have his wife take her own benefit at 62 and then switch to a spousal benefit at 67 is not feasible under the current rules. Once she files for Social Security at 62, deemed filing comes into play. Social Security will compare her own reduced benefit to her spousal benefit and provide her with the higher amount. But because she’s filing early, both her own benefit and the spousal benefit will be reduced due to early claiming.

Let’s use some numbers to illustrate this. Suppose the listener’s full retirement age benefit is $3,000, and his wife’s own full retirement age benefit is $800. Her spousal benefit, which is half of his full retirement age benefit, would be $1,500 at her full retirement age of 67. However, if she takes her benefit at 62, both her own benefit and her spousal benefit will be reduced. Her $800 benefit would be reduced to $560 due to early claiming (a 30% reduction), and her $1,500 spousal benefit would be reduced to $1,050 (also a 30% reduction).

The Importance of the Higher Benefit

When planning for Social Security, it’s crucial to focus on maximizing the higher earner’s benefit. This is because the higher benefit will last longer, especially for the surviving spouse. In our listener’s case, the goal should be to maximize his own benefit by delaying his filing until age 70 if possible. By waiting until 70, his benefit would increase by 8% per year after full retirement age, resulting in a 24% increase over three years. If his full retirement age benefit is $3,000, waiting until 70 would increase his benefit to $3,720.

Survivor Benefits

Maximizing the higher benefit is not only about getting the most while both spouses are alive but also about providing the highest possible survivor benefit. When the higher-earning spouse passes away, the surviving spouse will receive the higher benefit amount. Therefore, delaying the higher earner’s Social Security can significantly impact the financial well-being of the surviving spouse.

Longevity Considerations

A crucial part of this decision is considering your longevity. Tools like the Longevity Illustrator (www.longevityillustrator.org) can help you understand the probabilities of living to various ages. Remember, the decision to delay Social Security is not just about your life expectancy but about the joint life expectancy of you and your spouse. There is a high probability that one of you will live longer than the average life expectancy, especially if one spouse is younger and female.

Where Does This Leave Us?

To sum up, in the listener’s scenario, the most beneficial strategy would likely involve the higher earner delaying their Social Security benefit until age 70 to maximize the overall benefit and ensure the highest possible survivor benefit for the spouse. The spouse with the lower benefit should also carefully consider when to start their benefits, keeping in mind that any early claiming will result in a permanent reduction.

If you have more questions or need personalized advice, visit www.retirement-revealed.com and click “Ask Jeremy a Question” in the top right-hand corner. 

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Additional Links:

• “When is the Right Time to File for Social Security?” – Mr. Retirement
• www.longevityillustrator.org 

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