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Social Security tips for couples

These strategies may help couples boost their lifetime benefits, perhaps dramatically.

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For many people, one of the best financial decisions they’ll make has little to do with money: They get married.

Aside from the benefits of joint saving and planning throughout their working lives, married couples have something of an edge when it comes to claiming Social Security. The basic rules of Social Security apply to everyone equally, of course. But married couples can take advantage of a few strategies that may help significantly increase lifetime benefits.

That potential boost is especially valuable to a spouse (often the wife) who is younger and has lower lifetime earnings than her husband—and who therefore has more need for increased benefits and more time to use them.

Some of these strategies require short-term sacrifice. For starters, you must wait until your full retirement age (FRA) to implement all but one of these strategies. In other words, you’ll have less Social Security income in the first few years of retirement, while planning larger benefits later. Any such trade-off will affect your budgeting, portfolio management, and tax planning, so it’s a good idea to solicit the help of a financial adviser to evaluate these options within the context of your overall retirement plan.

“Recent research from the MacArthur Foundation has shown that many Americans are underestimating how long they may lead enjoyable healthy lives,” says Stephen J. Devaney, CFP, CASL, and quantitative analyst in Fidelity Strategic Advisers. “Longer lives mean great news for many reasons, and also increase the potential impact of Social Security strategies.”

Strategy #1: Maximize the survivor benefit

How it works: When you die, your spouse is eligible to receive your monthly Social Security payment as a survivor benefit, if it’s higher than his or her own monthly amount. That means if you take Social Security before your FRA, you are permanently limiting your partner’s survivor benefits - a fact many people overlook when they decide to collect Social Security at age 62. If you delay your claim, your benefit will grow and provide extra financial protection for your spouse after you die.

Whom it may benefit: This strategy is most useful if your monthly Social Security benefit at FRA is higher than your spouse’s, and if your spouse is in good health and expects to outlive you.

Example: Consider a hypothetical couple who are both about to turn 62. Mr. Aaron is eligible to receive $2,000 a month from Social Security when he reaches his FRA of 66, and believes he has average longevity for a man his age, which means he could live to age 85. Mrs. Aaron will get $1,000 at her FRA and, based on her health and family history, anticipates living to an above-average age of 94. Initially, the Aarons plan to retire at 62, when he would get $1,500 a month and she would collect $750. Because they’re claiming early, both figures are 25% lower than their FRA benefits. Then Mr. Aaron realizes that his decision to take payments at 62 will reduce his wife’s benefits during the nine years that they expect her to outlive him.

If Mr. Aaron waits until he’s 66 to collect benefits, he’ll get $2,000 a month. If he delays his claim until age 70, his benefit—and his wife’s survivor benefit—will increase another 32%, to $2,640 a month. (Note: Social Security payout figures are in today’s dollars and before tax; the actual benefit would be adjusted for inflation and possibly subject to income tax.) Waiting until age 70 will not only boost his own future cumulative benefits by 6.1%, it will have a dramatic impact on his wife’s income. In this hypothetical example, her lifetime Social Security benefits would rise by about $68,000, or 27%. Even if it turns out Mrs. Aaron is overly optimistic and she dies at age 88, her lifetime benefits will still increase 12% and, together, the Aarons would collect approximately $39,000 more in Social Security benefits than if they had claimed at 62.

Bottom line: The longer she lives, the better they will do if he waits to claim. (For more on why it’s generally better to wait until at least your full retirement age before claiming Social Security, see Should you take Social Security at 62?)

Strategy #2: Claim and suspend

How it works: Normally, you have to be collecting Social Security payments before your spouse could claim spousal benefits. But if you have reached FRA, you can file for benefits then suspend them until a later date. Your spouse can then start receiving spousal Social Security checks based on your work history, as long as she is 62, while the value of your future payments keeps rising.

Whom it may benefit: This strategy works best for couples with very different earnings histories, where the higher-earning spouse would like to keep working, while the lower-earning spouse wants to retire and would be better off with the spousal benefit than his or her own.

Example: Suppose Mr. Brooks has reached his FRA of 66 and is eligible to receive $2,000 a month, and Mrs. Brooks is 62 and in line to collect $750 a month when she reaches FRA. If Mrs. Brooks retires now, she will get only $563 a month based on her own work history, because she will be claiming benefits early, but she would get $700 a month if she could claim spousal benefits based on Mr. Brook's earnings.

So Mr. Brooks claims benefits now, but suspends taking them himself, which means his wife can draw increased spousal payments right away. If he then lives to age 86 and she lives to 88 (average expectancies, given their current ages), this strategy in our hypothetical example will add more than $26,000 to Mrs. Brook's lifetime benefits, increasing the total value of her payments by about 12%.

Strategy #3: Claim now, claim more later

How it works: If you have reached FRA and you and your spouse are ready to retire, you may be able to achieve a long-term gain in payments by initially claiming spousal benefits, allowing your own benefits to grow, and then switching to your own later. (There’s a similar strategy for surviving spouses that we’ll address in a future article.)

Whom it may benefit: This strategy is most useful if your household can handle lower monthly checks in the early stages of your retirement in return for higher payments later, and if your benefit at FRA is higher than your spouse’s—but not so much higher that your spouse would be better off with the spousal benefit. (That’s an important distinction from the claim-and-suspend strategy.) And it’s particularly helpful if your spouse is in good health, and you expect him or her to live a long life.

Example: Say Mr. Carter is 66 and eligible for $2,000 per month in Social Security now, while Mrs. Carter is 62 and is due to collect $1,000 a month at FRA. If they both retire now and take benefits, he’ll get $2,000 and she will receive $750, for a total of $2,750 a month. But suppose Mr. Carter claims only a spousal benefit now, and delays taking his own benefits until age 70. That means, initially, the Carters will get just $1,250 a month: her $750 plus $500 to him (he gets 50% of Mrs. Carter’s $1,000 FRA benefit, not 50% of her reduced benefit at age 62). But in four years, Mr. Carter’s monthly benefits will jump to $2,640 based on his own work record, giving the couple a total of $3,390 a month until his death.

If he lives to age 86 and she lives to 94 (25% beyond average expectancy for a 62-year-old woman), his lifetime payments in our hypothetical example will increase by nearly $26,000, and hers will soar by more than $52,000, driving up their collective benefits by about 11%, or nearly $79,000. And these calculations don’t include any income Mr. Carter might earn between the ages of 66 and 70, if he can keep working (and contributing to Social Security) while his benefits grow. It’s important to note, though, that because Mrs. Carter has not reached her FRA, she should only work up to specific income limits: Her benefit and Mr. Carter’s spousal benefit will be subject to an earnings test, which could temporarily reduce their benefits.

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This article uses the Annuity 2000 mortality table to determine longevity, which is a narrower universe than the Social Security Administration’s. The Social Security Administration uses a mortality table that averages the entire nation. The Annuity 2000 table better reflects the typical Fidelity client, skewing toward a somewhat more educated and affluent individual with a slightly longer life span.

Lifetime benefits are determined by calculating the present values of the Social Security payments over time. The present values are calculated by discounting the Social Security payouts by an inflation-adjusted rate of return. The illustrations use the historical average yield of U.S. 10-Year TIPS for discounting.

The benefit calculations and discounting in this article does not account for the effect of taxes. The after-tax discount rate for an individual could be very different from another depending on multiple factors including the sources and levels of income. For individualized estimates, one could try the Retirement Estimator from the Social Security Administration. Assumes a person is in good health. Average longevity corresponds to a 50% chance of living to a stated age. Above-average longevity corresponds to a 25% chance of living to a stated age.
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