By W Financial Advisors • Wealth Wednesday Brief • 3–5 min read
SCENARIO
When Karen and her husband David met with their advisor to discuss Social Security, they arrived with a simple plan: each would claim at 65 to maximize the years they'd receive checks.
"We've both worked," Karen said. "We each have our own benefit. So we each just claim when we retire, right?"
Her advisor smiled. "That's actually one of the more common misunderstandings I see. For couples, Social Security is not two separate decisions; it is one household strategy."
Over the next hour, she showed them how coordinating their claiming ages could produce significantly more lifetime household income, and far greater financial security for whoever survived the other.
THE CONCEPT
Social Security offers several benefit types relevant to couples:
Spousal Benefits: A spouse who is eligible for their own Social Security retirement benefit is also eligible for a spousal benefit equal to up to 50% of their partner's Primary Insurance Amount (PIA, essentially their FRA benefit). If the spousal benefit is higher than their own benefit, Social Security will pay the higher amount.
Survivor Benefits: When one spouse dies, the surviving spouse may claim the deceased spouse's full benefit (if they are at FRA or older). If the deceased had delayed claiming and received a higher benefit, the survivor inherits that higher amount. If the deceased had claimed early and received a reduced benefit, the survivor receives that reduced amount.
This survivor benefit dynamic makes the higher earner's claiming age particularly consequential. That decision does not just affect the higher earner; it establishes the floor of income the surviving spouse will receive, potentially for decades.
EXAMPLE
Tom earns $3,200/month at FRA. Lisa earns $1,400/month at FRA.
Scenario A: Both claim at 65 (before FRA).
- Tom's reduced benefit: ~$2,700/month
- Lisa's own benefit (~$1,185 at 65, reduced): $1,185/month
- Together: $3,885/month
- If Tom dies at 80 and Lisa survives to 90: Lisa receives Tom's $2,700 as a survivor's benefit for 10 years
Scenario B: Tom delays to 70, Lisa claims at 67 (FRA).
- Tom's delayed benefit: ~$3,968/month
- Lisa's own benefit: $1,400/month
- Together: $5,368/month starting at age 70
- If Tom dies at 80 and Lisa survives to 90: Lisa receives Tom's $3,968 as a survivor's benefit for 10 years
In Scenario B, the household receives more income during both lifetimes, and Lisa's survivor income is approximately $15,000 per year higher for the decade she's alone. The gap between the two scenarios, accumulated over a long retirement, can be substantial.
STRATEGY
Coordinating spousal and survivor benefits typically involves these considerations:
- The higher earner should generally delay longer than the lower earner. The higher earner's delayed benefit is worth more per dollar of delay, and the survivor benefit carries more long-term value if it is larger.
- The lower earner may claim earlier. If the lower earner claims at FRA or earlier, this can provide household income while the higher earner delays, reducing the need to draw heavily from portfolio assets during the bridge period.
- Consider the age difference. If one spouse is significantly younger, the survivor benefit period may be quite long. Maximizing the benefit the younger spouse would inherit as a survivor may be especially valuable.
- Do not overlook divorced spouses. If you were married for at least 10 years and are currently unmarried, you may be entitled to a spousal or survivor benefit based on your ex-spouse's record, without affecting their benefit.
COMMON MISTAKE
The most common mistake among couples is treating Social Security as two independent decisions. Each spouse looks at their own break-even and claims based on their own circumstances, without modeling the survivor benefit impact.
A related mistake is assuming that both spouses should claim at the same time, perhaps because it "feels fair" or because they're retiring simultaneously. The optimal claiming ages for two spouses are often different, and forcing them to be the same can leave significant lifetime income on the table.
KEY TAKEAWAY
For married couples, the most important Social Security question may not be when to claim, but how to coordinate claiming to maximize household income and protect whoever survives.
SOURCES & REFERENCES
1. Social Security Administration. Retirement Benefits. Publication No. 05-10035. ssa.gov.
This article is for informational and educational purposes only and should not be construed as personalized investment, tax, or financial advice. All examples are hypothetical and for illustrative purposes only. Actual benefits and claiming outcomes will vary based on individual earnings records, life expectancy, benefit elections, marital history, and future Social Security rules. Please consult a qualified financial professional regarding your individual situation. This information may not be relied upon for the purpose of determining your Social Security benefits or eligibility, or avoiding any federal tax penalties. You are encouraged to seek advice from your own tax or legal professional. Social Security rules and benefit calculations are subject to change. Information presented is based on current understanding of applicable Social Security regulations as of the publication date.
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