Social Security for Married Couples

When thinking about retirement, individuals should take note that being married can provide significant planning advantages. While there are certainly advantages to being married in the context of retirement plan benefits and tax planning, this newsletter focuses on some of the advantages of being married for purposes of Social Security benefits.

The Basics
An individual with at least 40 quarters (10 years) of payment into the Social Security system can begin receiving Social Security retirement benefits as early as age 62. However, their benefit will be reduced if they begin taking benefits before their full retirement age (“FRA”). For example, if a person’s FRA is age 66, their benefit at age 62 will be about 25% less than it would be at age 66. Additionally, for every year after the FRA an individual delays in taking his or her benefits, the benefits will increase by 8% per year until that individual reaches age 70. For the person with a FRA of 66, that individual’s benefit at age 70 will be 132% of what it would have been at age 66.

Spousal Benefits
If an individual has been married for at least a year and the individual’s spouse has applied for a social security benefit, once the individual turns age 62 he or she can begin taking a spousal benefit based on the earning record of their spouse. If the individual begins taking the spousal benefit between age 62 and their FRA, the amount will be permanently reduced by a percentage based on the number of months up to the individual’s FRA. If the individual is at his or her FRA, their spousal benefit can be equal to one-half of their spouse’s primary insurance amount (“PIA”), i.e., the benefit their spouse will receive at their FRA. Only one spouse may receive a spousal benefit.

Putting it into Practice
To see how these rules work for planning purposes, let’s look at an example. For our purposes, let’s use a fictional married couple, Joe and Alice. Let’s assume that both Joe and Alice are age 65, and their FRAs are age 66. Let’s also assume that Joe’s PIA (the amount he will receive at his FRA) is $2,100, while Alice’s PIA (the amount she will receive at her FRA) is $1,200.

If Joe applies for his Social Security retirement benefit, he can voluntarily suspend those benefits, meaning he will not receive any money until he unsuspends. If he waits to unsuspend his benefits until he turns 70, his benefit will be $2,772 per month, which is equal to 132% of what it would have been at age 66.

Since Joe has applied for his benefit, Alice can apply for a spousal benefit. If she waits until she turns 66 to take the spousal benefit, she will receive her maximum spousal benefit of $1,050 per month, an amount equal to onehalf of Joe’s PIA. Additionally, she can also choose to suspend her own benefit. When she turns 70, she can switch to taking her own benefit, which will be in the amount of $1,584 per month, equal to 132% of what it would have been at age 66.

Under this scenario, had both Joe and Alice taken their Social Security benefits early at age 62, the cumulative value of their benefits at age 90 (not taking into account cost-of-living adjustments or reinvestments) would have been $831,600. If they had both delayed taking their benefits until age 70 but not taken a spousal benefit, the cumulative value would have been $1,045,440. However, since they both decided to suspend their benefits to age 70, and Alice also decided to take the spousal benefit at age 66, the cumulative value of their benefits at age 90 will now be 1,095,840.

Conclusion
Taking a spousal benefit means Joe and Alice get an extra $50,400 in benefits, all in the first four years of retirement. This is essentially “free” money—one individual taking the spousal benefit does not reduce the regular benefit for either spouse. Additionally, since maximizing the Social Security retirement benefit means waiting to take the benefit for up to 8 years after an individual is eligible, if anything the spousal benefit provides a little extra that could help alleviate any financial stress a couple may face over those 8 years.

For Joe and Alice, waiting 8 years meant passing on $237,600 from ages 62-70. However, as seen above, taking the spousal benefit gave them $50,400 from ages 66-70, where, without the spousal benefit, they would have received nothing over those four years. And, in the end, Joe and Alice will make up the $237,600 they passed on in those first 8 years, while also receiving an extra $264,240, all by the time they turn 90 years old. While some couples may not be willing or able to implement this practice, others certainly might.

As with any estate plan, there are considerable nuances to any couple’s situation. For more information on optimizing Social Security benefits or estate planning in general, please contact us: Michael R. Crowder: mcrowder@kmfpc.com — Alexander M. Taylor: alex@kmfpc.com