Married couples have more options than single people do when it comes to Social Security benefits. That’s because each member of a couple can opt to claim at different ages and may also have access to spousal benefits.
To maximize Social Security, you and your spouse need to work together to identify the claiming strategy that’s best. Here are a few potential strategies for you to know about and to discuss with your wealth advisor, who can help you understand the complexities of each and how they may apply to your financial plan.
Strategy #1: Delay filing for benefits if you can.
You can start claiming benefits at age 62, but there’s no rule that says you must claim early. In fact, the difference in additional paid benefits if you wait is sizable: For every year you decide to postpone, you could receive up to an 8% annual increase (that’s an extra 0.67% each month). Note that this increase stops at age 70, so there’s no reason to delay beyond that.
The best-case scenario for delaying is if you have a normal to high life expectancy, you and your spouse have similar earnings, and you are either planning to wait until age 70 to retire or you have ample savings to provide income during the gap between retirement and claiming social security.
Strategy #2: Have the lower earner collect benefits first.
This is sometimes referred to as a “split strategy.” If the lower earner begins collecting first while the higher earner waits, this enhances the higher benefit amount while still providing some Social Security income. The longer the spouse with the higher benefit waits to start collecting, the higher benefits will be for both spouses. Just as important, this could provide for greater survivor benefits in the future.
This can be an ideal strategy if you’ve saved for retirement using 401(k)s and IRAs, so you’re able to cover the income needs in the interim.
Strategy #3: Consider the spousal benefit if one of you is a much higher earner.
You could claim benefits based on your respective earnings records, or you could claim 50% of your spouse’s benefit (or vice versa). If you or your spouse is a much higher earner than the other, that spousal benefit could be advantageous.
You are eligible for spousal benefits if you are the age of eligibility (62) or older and your spouse, ex-spouse or deceased spouse was or is eligible for benefits. When you apply for spousal benefits, you’ll also apply for benefits based on your earnings history. If you’re eligible for benefits based on your earnings and that benefit is higher than your spousal benefit, you’ll get the higher benefit. If your benefit is lower, you’ll receive the spousal benefit.
Strategy #4: Claim later to maximize the survivor benefit.
When one spouse dies, the surviving spouse is eligible to receive monthly benefits in what’s called the survivor benefit. However, those who take Social Security before they reach full retirement age (FRA) are limiting their spouse’s survivor benefits.
If you expect your spouse to outlive you and your Social Security benefit is higher than theirs, it may be a good idea to wait until at least your full retirement age (which ranges from age 66 to 67, depending on your birth year) to start receiving benefits.
Social Security benefits can be an important part of your retirement income and it makes sense to maximize those benefits however you can.
Would you like to talk more about the implications of each strategy for your particular financial situation? Contact Ironwood Wealth Management for a tailored and personalized approach to wealth management.
**All information and assumptions are based on information as of June 2021. Tax rates and tax policy are subject to change.