How Couples Can Get Maximum Benefit From Social Security

How Couples Can Get Maximum Benefit From Social Security
Kevin Wenke

Kevin Wenke

Owner at Decision Tree Financial. CFP. CLU

When making decisions regarding Social Security retirement income, couples not only need to consider life expectancy and break-even analysis, which is complex enough on their own, but they also need to consider how their benefits are shared between themselves along with potential survivorship benefits.

Couples have more factors to consider than a single individual when it comes to Social Security retirement income. These factors have the potential to supply a multitude of additional benefits for them as well making Social Security retirement income much more valuable than other sources of income.

For starters, couples have the choice of taking their own earned benefit OR ½ of their higher earning spouse’s benefit; whichever is higher (assuming the higher earning spouse is receiving their own benefits as well.)

They can get one or the other, not both benefits and they when they chose one, they can not switch to the other later. This is different than in the past. 

Today, a spouse is “stuck” with their decision regarding which Social Security retirement benefit to take which means they will want to make the right decision by taking all the factors regarding their retirement goals into consideration.

This rule of being stock with their decision is known as “deemed filing” which means, when they chose one, they are deemed to have decided on both.

One of these considerations still revolves about Social Security retirement income itself. That is the main survivor benefit includes a “step up” to 100% of the higher earning partner’s benefit regardless of which retirement benefit they chose.

Regardless of whether the spouse chose their own earned retirement benefit or half of their spouses, the surviving spouse will receive the highest benefit between the two of them– not both – at their spouses death.

When this is considered, the benefit of a higher earning spouse waiting is magnified. Not only do they receive an increase in the amount of income they can receive during retirement (including all the potential benefits like tax free cash flow and inflation cost of living adjustments, which can really make a big difference to accomplishing the goal of a successful retirement).

But, they also are in a way creating a form of life insurance for their surviving spouse making sure that they continue to take care of him or her if they pass away before them. Taking care of a surviving spouse is a powerful way to show love.

On the other hand, when a higher earning spouse waits longer to take their Social Security retirement benefits, it can hold the second spouse “hostage” because in order for the other spouse to start claiming ½ of their higher earning spouse’s benefit, that higher earning spouse must start their own benefit.

In the past there were strategies that allowed the higher earning spouse to begin their benefits and then ‘suspend’ them.  This allowed the lower earning spouse to begin taking ½ of their entitled benefit while simultaneously allowing the higher earning spouse to continue delaying benefits to let them increase.

The government stopped these strategies in 2015.  However, beneficiaries born before 1954 were still able to qualify for what is known as a “restricted application.”

This means that when a lower earning spouse reached full retirement age, they had the ability to claim ½ of their spouse’s benefits if they filed.

Any benefits the higher earning spouse was entitled to would continue to earn that 8% annual increase until they reached age 70.

 If the lower earning spouse’s own benefit became higher than ½ of their spouses, under a restricted application, they had the ability to switch to their own benefits. This is now not an option for people turning 62 this year or later.

The government put the kibosh on that strategy for anyone born January 1, 1954 or later. Now, the deemed filing rule is applied to the choices spouses make.

n a nutshell, deemed filing means that when you file for either your retirement or your spouse’s benefit, you are required or “deemed” to file for the other benefit as well.

You get either or and you can no longer switch if your own benefit would have increased.  You are stuck with your choice now.

I mention this twice because it is important to know. Many retirees get advice from older individuals who made their choices when the rules where different.

But the deemed filing rule applies to RETIREMENT INCOME Only!

If a spouse is eligible for survivor benefits before they started taking their own Social Security retirement income, then they can still claim their deceased spouses benefits while allowing their own benefits to continue to grow. 

If in the future their benefits exceed their deceased spouse’s, they can switch and receive the higher of the two….confused yet?  That is a lot to consider – and there is more!

For couples who each have their own benefits, we can make it a little simpler.  They have these four choices as to when to start benefits. 

These same Social Security rules apply to same-sex couples as well.

  • Neither Spouse Delays
  • Spouse 1 Delays
  • Spouse 2 Delays

The choice for neither spouse to delay would be made if both spouses have a short life expectancy.  A word of caution, I have worked with many people who, for one reason or other, believe they are going to die before they turned 70 years old but ended up living into their 90s.

 I discuss more about getting a professional opinion on your actual life expectancy, which could influence your decision on when to start benefits, in my Social Security guide.

The other reason both spouses may consider taking benefits early is they believe that their investments will outperform the benefit of waiting.  In this case, Determining Break Even on Social Security Income is important and I have linked my article regarding this concept so you can read it after this.

The benefit of having only one spouse wait to take benefits as long as possible includes the obvious point of having their own benefit increase, but, potentially more important is the survivor benefit will also increase.  This is an important estate planning tool.

When you analyze life expectancy, you can see from this graph that the odds of both spouses being alive until right around 79 years old. (where the median life expectancy line intersects with the edge of the dark shaded area).

However, the odds also show that at least one spouse will be alive at age 91.

Therefore, a general recommendation to enhance survivor benefits is to have the higher earning spouse delay benefits, regardless of health considerations.

Personal health is something most people put a lot of weight on when making decisions on their own, but not the dominant consideration for couples.

The reason for the higher earning of the couple to delay initially is because that spouse’s benefit will increase, but more importantly it enhances the survivor benefit for both people.  Both spouses are eligible for the higher benefit when one of the couple passes away.

The final choice is that BOTH in a couple could delay.  This occurs when they are both generally healthy and both expect to live an above average life span.

In addition, the couple believes that their investment portfolios will not perform very well.   Again, this is a consideration in a break-even analysis see my break-even video/article also you may want to watch the video on why taking social security is a perfect hedge for an investment portfolio – also linked below

The graph here gives a visual summary of these four choices. You can see when the choice is for one person to delay it is always the higher earner that should delay.

There is a lot for couples to consider when deciding when to take social security.  There are not only retirement benefits, but also survivor benefits.  The choice is best made as part of a comprehensive plan that helps all the pieces of your financial life to work together.

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