Determining the best time to claim Social Security can be a tough task for many retirees. Unfortunately, it becomes even more complex when retiring as a couple.
Between spousal benefit eligibility, survivor benefits, taxes, and all the other financial concerns of retiring, figuring out the best time for each member of the household to claim Social Security can lead to some serious headaches.
Thankfully, a simple heuristic could allow most couples to maximize their Social Security with the additional benefit that they may be able to start enjoying their retirement income sooner.
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The big Social Security trade-off
If you spent enough time working and paying into Social Security, you become eligible for retirement benefits when you reach age 62. However, if you decide to delay your benefits, the government will reward you with higher monthly payments in the future. Each month you delay results in a slight bump in your Social Security benefit, but it can add up. Delaying retirement benefits from 62 to age 70 will result in an increase of about 77% in your monthly payment.
If you expect to claim spousal benefits, though, you won't be able to boost your payment by as much. Spousal benefits max out when you reach full retirement age, which will range between 66 and 67 for most readers depending on when you were born. Still, waiting to claim benefits until you reach that threshold could be worth it for some.
The key to determining whether delaying benefits makes sense is to calculate how long you'd have to live in order to make up for years of foregone Social Security payments. For individuals, the math is simple. If you can expect to live an average lifespan or longer, it probably makes sense to delay your benefits as long as you can (up until age 70 when you no longer receive any benefit increases for delaying).
However, couples also get the added bonus of survivor benefits. Survivor benefits allow the surviving spouse to trade up, so to speak, to their spouse's monthly payment once they pass away. Since the odds of one person out of the couple living longer than average is significantly higher than just a single individual living long enough to breakeven on the decision, it makes sense for at least one member of the couple to delay benefits until age 70. That should be the higher-earning spouse, since it will maximize the potential survivor benefit.
What should the other spouse do?
The lower-earning spouse can maximize their benefits by waiting until full retirement age (if they intend to claim spousal benefit) or age 70 (if their individual benefit will be higher). But that will only maximize the benefit while both spouses are alive. If the higher-earning spouse passes away first, the lower-earning spouse will receive survivor benefits. As a result, the years of delaying benefits won't result in more Social Security income over the long run (unless both spouses live abnormally long lives).
As such, it often makes sense for the lower-earning spouse to claim benefits as soon as possible, at age 62. While that will result in a smaller individual benefit while both spouses are alive, the expected total income over the joint life expectancy of a healthy couple is maximized when the lower-earning spouse takes Social Security at 62 and the higher-earning spouse waits until age 70.
It's worth pointing out that this can work especially well in practice for couples where the higher-earning spouse is older than the lower-earning spouse, allowing them to start benefits within a few years of each other. But even in situations where the reverse is true, the theory still leads to the same strategy working out, even if its more difficult on a practical level and could result in the lower-earning spouse waiting a long time to receive spousal benefits.
Other sources of income, ACA subsidy eligibility, and other tax consequences should also be considered for your personal situation. It may be a good idea to hire a financial advisor to look at your plan, but for many households, it makes sense for one spouse to claim as soon as they're eligible while the other delays until age 70.
