For most middle income couples, Social Security represents a substantial portion of their retirement income—often upwards of $500,000 in lifetime benefits. Doesn’t it make sense to maximize that asset if you can?
Social Security is the only retirement asset that:
A 62-year-old couple with one above average earner (Full Retirement Age Benefit of $1,800) and a lesser earning spouse (Full Retirement Age Benefit of $1,000), who both live to average life expectancy could lose over $60,000 in family benefits by making the worst possible decision for when to take Social Security.
Most people are eligible to elect Social Security at any time between age 62 and 70. However, many people simply elect Social Security at whatever age they decide to retire, not the age when it will give them the maximum lifetime benefit.
In theory, if you elect early, you will get a smaller benefit for a longer period of time. If you elect later, you will get a larger benefit for a shorter period of time. For single people, the decision of whether to elect early or later is usually as simple as answering the question: do you think you’ll live long enough to make waiting worth it? For example, if you decide to elect at 66, how long will it take for the larger payments to make up for the payments you missed from 62-65.
For married couples, however, the decision is much more complex. Why? Because Social Security offers three distinct benefits for married people that these simple calculators ignore:
Virtually all of the simple break-even calculators in use today ignore the Spousal and Survivor benefits. More complex planning software includes spousal and survivor benefits but only for one combination of election ages. In short, neither tool offers a thorough analysis.
Social Security Timing® evaluates all 81 election age combinations across 9 different election strategies and finds the highest lifetime benefit.
If you file prior to full retirement age, you are deemed to have filed for all benefits for which you are eligible. At full retirement age and beyond, you have several options to elect a limited benefit for a period of time, then switch to a larger benefit at some point in the future. We refer to these planning options as “Switch Strategies®.” There are two basic techniques that enable switch strategies: the “restricted application” and the “file and suspend.” When you go to the Social Security office, the individual you meet with may have been trained to help you identify the highest benefit you can get today, not necessarily over your lifetime, and likely not over the joint lives of you and your spouse. As a result, you may not hear about these techniques during a typical visit.
Once you reach Normal Retirement Age, you have the option to restrict your application to exclude certain benefits. If a benefit is excluded, it will continue to build delayed retirement credits. As an example, a higher-earning spouse, who may want to wait until age 70 to collect his own benefit may be able to file at 66 for only the benefit available under his spouse’s work record, while still allowing his own benefit to build delayed retirement credits. At age 70, he would switch to his own benefit. Alternatively, a lower-earning spouse could restrict his or her application to only spousal benefits while continuing to claim delayed credits on his or her own earnings record.
It is important to note that Social Security benefits are completely gender-neutral. In other words, any technique that is available to the “primary earner” is also available to the “secondary earner.” Certain combinations of the two techniques are also allowed. For example, the higher earner could file and suspend to make a spousal benefit available to the secondary earner, who could then file a restricted application for only spousal benefits. This would allow both earners to earn delayed retirement credits on their own earnings records while one spouse still collects benefits now.