Claiming Social Security benefits is a significant financial decision for couples, as it can impact their retirement income for the rest of their lives. Here are some strategies and examples to help couples decide when and how to claim their Social Security benefits:
1. Consider Full Retirement Age (FRA)
- Strategy: Each person has a Full Retirement Age (FRA) based on their birth year (usually between 66 and 67). Claiming benefits at FRA allows you to receive your full retirement benefit without reduction or increase.
- Example: If both spouses have similar earnings histories and want a steady income stream without any reduction, they could both claim at their respective FRAs.
2. Delayed Retirement Credits
- Strategy: By delaying benefits beyond FRA, you earn delayed retirement credits, which increase your monthly benefit by about 8% per year up to age 70.
- Example: If the higher-earning spouse delays claiming benefits until age 70, they will maximize their benefit, providing a larger survivor benefit for the lower-earning spouse if they pass away first.
3. File and Suspend (No Longer Available)
- Strategy: Although the “File and Suspend” strategy was popular, it was eliminated for those born after January 1, 1954 under the Obama administration through the Bipartisan Budget Act of 2015. However, understanding its past use can inform current decisions.
- Example: Previously, a higher-earning spouse could file for benefits at FRA, then suspend them to allow the lower-earning spouse to claim spousal benefits while their own benefits continued to grow. While this strategy is no longer available, couples may consider other options like restricted applications for spousal benefits.
4. Spousal Benefits
- Strategy: The lower-earning spouse can claim spousal benefits, which are up to 50% of the higher-earning spouse’s FRA benefit. This can be advantageous if one spouse has significantly lower lifetime earnings.
- Example: The lower-earning spouse claims spousal benefits at FRA, while the higher-earning spouse delays their benefits until age 70 to maximize their retirement income.
5. Sequential Claiming
- Strategy: One spouse claims benefits early, while the other delays to maximize delayed retirement credits. This approach provides income now while increasing future benefits.
- Example: The lower-earning spouse claims benefits at age 62, providing immediate income, while the higher-earning spouse waits until 70, ensuring a higher income later.
6. Survivor Benefits
- Strategy: Maximizing the higher earner’s benefit can be crucial for survivor benefits, as the surviving spouse will receive the larger of the two benefits.
- Example: The higher-earning spouse delays claiming until age 70, ensuring that the surviving spouse receives the maximum possible benefit if the higher earner passes away first.
7. Health and Longevity Considerations
- Strategy: If one spouse has a shorter life expectancy, it might make sense for them to claim earlier. The healthier spouse might delay claiming to increase the survivor benefit.
- Example: If one spouse has a medical condition that may shorten their lifespan, they might claim benefits at 62, while the other spouse delays claiming to provide higher survivor benefits.
8. Earnings and Tax Considerations
- Strategy: Consider the impact of continuing to work while claiming benefits. Earnings above a certain threshold can reduce benefits if claimed before FRA, and Social Security benefits may be taxed depending on your income level.
- Example: A couple where one spouse continues to work past FRA might delay claiming benefits to avoid reductions and taxation, while the non-working spouse claims early.
9. Restricted Application for Spousal Benefits (Only for Those Born Before January 2, 1954)
- Strategy: If eligible, one spouse can file a restricted application for spousal benefits while allowing their own benefits to grow.
- Example: A spouse born before January 2, 1954, can claim spousal benefits at FRA while deferring their retirement benefits to grow until age 70.
10. Longevity Insurance
- Strategy: Treat delaying Social Security as a form of longevity insurance, ensuring a higher income stream later in life when other savings may be depleted.
- Example: Both spouses delay benefits until age 70 to secure a robust income in their later years, especially if they have concerns about outliving other retirement assets.
Final Considerations:
- Customized Approach: Every couple’s situation is unique, so consider your health, longevity, financial needs, and life goals when deciding.
- Consultation: Consider consulting a financial planner or Social Security expert to model various scenarios and determine the best claiming strategy for your specific situation.
These strategies provide a framework for making informed decisions about when and how to claim Social Security benefits as a couple.
-Lê Nguyễn Thanh Phương-
Resources for Further Information:
- Social Security Administration (SSA) Resources: The SSA provides detailed guidelines on how spousal benefits work and the implications of the Bipartisan Budget Act of 2015, which changed some claiming strategies like “file and suspend.” Their resources are invaluable for understanding the current rules and options (Social Security).
- Fidelity and Financial Planning Sites: These platforms offer practical examples and tailored advice on how to coordinate Social Security benefits as a couple, considering factors like earnings history and life expectancy (Fidelity Investments).
- USA.gov: This official government resource provides a comprehensive overview of various government benefits, including Social Security, and helps navigate the application process (USAGov).
For more detailed information, you can explore these resources to tailor a strategy that best fits your circumstances.