Millions of couples blissfully say "I do" each year with perhaps only a fleeting thought of eventually retiring with their beloved. But married couples should pause to consider the array of Social Security options they have that their single counterparts don't.
While both members of a married couple are living, they are entitled to benefits based on their own earning records or a spouse's benefit equal to 50 percent of the higher earner's amount. Olivia Mitchell, a professor of insurance and risk management at the University of Pennsylvania's Wharton School, recommends that you compute your benefits based on your own salary history and then your spouse's. "So I would be entitled to half of my husband's Social Security benefit if it was more than I could get on my own," she says. "If my own benefit is greater than half of his, then I get mine. It would work the other way around too. It's sex neutral."
These benefits are reduced if claimed earlier than the full retirement age. For example, a woman claiming the spouse's benefit at age 62 will receive only 35 percent of her husband's primary insurance amount rather than the 50 percent payable at age 66, according to a recent paper by Alicia Munnell and Mauricio Soto of Boston College's Center for Retirement Research.
Widows and widowers also get a survivor's benefit equal to 100 percent of their spouse's benefits, if it's higher than what they would get on their own. And the longer claiming is delayed up until age 70, the more money the surviving spouse will receive.
So, while it's often best for single men to claim early because of their traditionally shorter life expectancy than women (and for single women to generally claim later), coupledom turns this notion on its head. Because married couples often combine their incomes, they can estimate their life expectancy and strategize about the best age for each to sign up for Social Security to maximize their benefits together as a couple or for the survivor.
"For a traditional couple where the guy is the higher earner, if he takes his benefits earlier, that affects his wife's benefits when she retires and his widow's benefit if he dies," Mitchell says. The optimal strategy for most married couples where the husband is the bigger breadwinner is for wives to claim early and husbands to delay claiming, Munnell found. The best outcomes for the couple were found in most cases when men delayed claiming until age 69.
But the best strategy for any given couple depends on the lower earner's bankroll and the age difference between the spouses, Munnell found. If the wife is entitled to a Social Security benefit equal to 40 percent or more of her husband's, she should claim benefits as early as possible at age 62 and the husband should wait until age 69, regardless of their age difference. The couple can then share her benefit at age 62 and her 35 percent of his benefit when he retires (reduced for her having claimed early). Assuming the husband dies first, the wife will then get 100 percent of his benefit.
For example, if a man is entitled to $1,414 per month at age 62, his wife, who is the same age and entitled to a $1,000 benefit of her own, is likely to receive $164,630 over her lifetime if she begins claiming her benefits at age 62, say James Mahaney and Peter Carlson of the University of Pennsylvania's Pension Research Council in a working paper. Her benefit is too high to allow her to claim 50 percent of her husband's earnings, but should her husband die before her, she will get her husband's full survivor's benefit, plus any cost-of-living increases. If she waited until age 66 to claim, she would get only $162,081 over her lifetime (and $150,867 if she waited until age 70), assuming both she and her husband have an average life expectancy.
If the woman is entitled to only $300 a month on her own, she should still claim at age 62, Mahaney and Carlson found, as she could expect to receive $115,486 over her lifetime once she collects her portion of her husband's higher benefit and her survivor's benefits. Delaying until age 66 would net her only $114,591, and further delaying until age 70 would produce just $111,227.
But if the wife is entitled to less than 40 percent of her husband's benefit on her own, age differences come into play. If the spouses are the same age and the wife gets between 30 and 40 percent of her husband's benefit on her own, the wife should wait until her full retirement age (66 for the first wave of baby boomers retiring this year) to maximize the amount of money the couple will receive in retirement, Munnell and Soto found. And if the wife gets less than a third of her husband's benefit but is the same age, the wife should claim early and the husband should claim at his normal retirement age, when she'll get bumped up to receive a portion of his benefit. But if the woman is significantly younger in either case, she should claim early and he late to maximize her survivor's benefit.