Married couples have two extra benefits as compared to individuals. Those benefits can make all the difference for maximizing your lifetime benefit from Social Security.
Spousal benefit
The first is the spousal benefit, which permits you to collect up to half of the benefit of your spouse at his/her Full Retirement Age (see Part 1) if you have been married for a year or more. Your spouse must have started collecting his/her own benefit before you can start to collect the spousal benefit.
When you file, you choose between your own individual benefit and your spousal benefit – you cannot collect both at the same time. In fact, when you file for your benefits, Social Security will ask you if you are currently married. If you are, they will calculate which is higher and require you to take the higher value.
The spousal benefit is particularly important if your earnings are substantially less than that of your spouse. Then it would work out well to collect the spousal benefit instead of your own.
Survivor benefit
The other extra benefit from being married is the survivor benefit. When one of you dies, the survivor collects the higher of your two benefits. To collect this benefit, you must have been married for 9 months or more or have a child 16 or younger living with you.
So the higher benefits ends up being paid out over your joint lifetime, which is longer than either of your individual lifetimes. Your joint lifetime is the number of years when at least one of you in a couple is still alive.
Strategies for filing that will achieve maximum lifetime benefits
Just like for individuals, it is important for the higher wage earner to wait as long as possible, up to age 70, to file for benefits. But it is doubly important for married couples, because that higher benefit is paid out over both lifetimes.
What about the lower wage earner? It is less critical to wait until age 70 unless you are convinced that both of your lifespans will be substantially longer than average. After all, that lower benefit will be paid only until either of you dies, at which point only the higher survivor benefit will be paid.
The best strategy for the lower wage earner then is to file for benefits when you stop working or at your Full Retirement Age (FRA), whichever comes first. When the higher wage earner files for a benefit, you are now eligible for the spousal benefit. If your own benefit is greater than the spousal benefit, then keep it. If it smaller, switch to the spousal benefit.
Remember that at your FRA you can collect your full Social Security payments no matter how much you are earning. Starting early for the lower wage earner has the psychological benefit of not having to dip as much into your investments at an earlier age.
More complicated strategies for filing
There used to be a number of strategies for increasing lifetime benefits that included the spousal benefit. The Bipartisan Budget Act of 2015 stopped most of them. Only one is left. It is complicated and works only if the higher wage earner was born before January 2, 1954. If you qualify, it can provide an additional lifetime benefit of hundreds or thousands of dollars.
The first step is for the lower wage earner to file for his/her individual benefit. The second step happens after the higher wage earner has turned 66 (which is the FRA) and is therefore eligible for either his/her own or the spousal benefit. Then the higher wage earner does not file for his/her benefit but instead restricts (limits) his/her benefit to the spousal benefit. At this point both are collecting while the higher wage earner’s individual benefit is growing because he/she has not filed for it. Step three happens when the higher wage earner turns 70. Then he/she switches from the spousal to his/her own benefit. The lower wage earner either keeps his/her own benefit or switches to the spousal benefit, whichever generates more monthly income.
You can see that Social Security strategies are more complicated if you are married. You should consult your own tax, legal, accounting and financial advisors before engaging in any transaction or taking any actions with regard to the content discussed above. The author does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for tax, legal or accounting advice.
Next blog: Social Security strategies for previously married couples.