Soon-to-be-retired couples all too often make a huge mistake: failing to coordinate when to file for Social Security benefits. That's a big deal because both spousal and widow(er) benefits are highly influenced by when each partner starts receiving Social Security checks in their bank account.
By waiting to file for benefits until 67, you are actually doing a lot to ensure that both partners have a comfortable cushion in the form of monthly Social Security benefits.
The nuts and bolts of how Social Security works
But before digging into the weeds, let's go over how Social Security works. Your benefits will be determined by two factors and two factors only: your working record and when -- between the ages of 62 and 70 -- you decide to start receiving Social Security.
The Social Security Administration takes your (inflation-adjusted) 35 highest-earning years on record, and uses that to determine what your monthly benefit would be at full retirement age. For those born before 1955, full retirement age is 66. But starting with those born after that year, the full retirement age will slowly increase to 67.
After determining your monthly benefit at this age, it can then be adjusted up or down, based on when you decide to file for benefits. Right now, the average retired worker gets about $1,350 per month from Social Security. Let's assume that this is what your monthly benefit would be at the full retirement age of 67. Here's how that benefit can change, depending on when you file.
Obviously, there's a trade-off here. If you file earlier, you get less, but you start getting benefits much earlier. If you wait, you get more, but you'll collect for fewer lifetime months than you would if you cashed in at age 62.
Often, I argue that filing for Social Security at 62 is the best thing to do. For many people, it allows for autonomy over their time, which leads to a much healthier and happier lifestyle. But as you'll see, when it comes to looking after your spouse, it can sometimes make sense to wait until your full retirement age at 67.
Ensuring that your partner gets the most they can
In almost every couple, there's going to be one partner with a lower earnings record. That's not a surprise, but just how much lower is very important when it comes to Social Security.
If one spouse earned substantially less than another, it may make more sense for that partner to claim spousal Social Security benefits. This comes out to 50% of whatever the other partner is receiving. But there are two important caveats:
- The higher-earning spouse needs to have already filed for his/her own benefits.
- Spousal benefits max out at the higher-earner's full retirement age.
Let's use the exact same person from above as an example. Here's how much his/her spouse would get, depending on when benefits started rolling in.
By waiting until 67 to file for benefits, you are ensuring that your partner is getting the maximum spousal benefit possible.
But there's another Social Security benefit of waiting until 67
It's a sad reality that in almost every couple one will outlive the other. The Social Security Administration has a set of rules in place when that occurs: The surviving partner will keep their current benefit or assume the benefit of the deceased partner, whichever is higher.
No matter what, income from Social Security will go down in such a case (from two beneficiaries to one), but what it goes down to is largely under your control. By waiting for the higher-earning partner to claim at 67, the benefit for his/her surviving spouse will be substantially higher -- 43% to be exact -- than if they claimed at 62.
In effect, this delay in filing acts as a life insurance policy in the even that one partner passes away. Of course, that benefit could be even higher if filing occurred at age 70. But each couple needs to weigh their own financial circumstances carefully against what their options are in picking an ideal age to file for Social Security benefits.