Academic discussions of optimal Social Security-claiming strategies for married couples may make these important decisions seem clean and easy when both spouses are the same age.
But real life is often messy.
J.J. Green, president and chief executive of Primark Insurance Agency, asked me what would happen if one spouse is a few years younger than the other spouse, who decides to file and suspend benefits.
As a refresher, an individual must be at least full retirement age — 66 — when first claiming Social Security in order to file and suspend the retirement benefit.
Essentially that means an individual tells Social Security that he or she wants to trigger benefits for a spouse while delaying collecting his or her own benefits until they are worth more later. In addition, the spouse must be at least 62 to collect retirement benefits.
For each year an individual postpones collecting Social Security beyond full retirement age, he or she earn an additional 8% percent until 70. A retirement benefit collected at 70 would be worth 32% more (8% x 4 years) than the full retirement age benefit, also known as the primary insurance amount.
“What if one spouse is a couple years younger and not yet at full retirement age?” Mr. Green asked in an e-mail. “Would the younger spouse receive half of her husband's suspended amount if she is only 62 years old?”
A spousal benefit is worth 50% of the worker's benefit if collected at full retirement age and less if collected earlier. A spousal benefit collected at 62 would be worth just 35% of the worker's primary insurance amount.
If the wife has earnings on her own record, Social Security will pay her own retirement benefit first, reduced for early claiming. And if the spousal benefit is larger, her benefit would be topped off to bring it up to the spousal amount, also reduced for early claiming.
Here is how the math works. Let's say that her own benefit is $800 per month at 66, but just $600 — 75% of her PIA — if she collects at 62.
And assume that her husband's full retirement age benefit at 66 is $2,400 per month. The spousal benefit is half that or $1,200 if collected at 66, but only 35% of that or $840 if collected at 62.
So if she claimed benefits at 62, she would receive the larger amount of $840 per month of which $600 would be her own retirement benefit, and the $240 balance would be her spousal benefit.
Even though her retirement benefits would be permanently reduced, that may not be a bad thing. It would bring some additional income into the household now and the couple could count on having substantially more income later once the husband turns 70.
“What happens to the wife's benefit once the husband collects his larger benefit at 70?” Mr. Green asked. “Will her benefit increase, too?”
Spousal benefits do not earn delayed retirement credits. Her retirement benefits will not increase when he begins to collect Social Security.
But there is an added benefit.
By deferring his retirement benefits, the husband is ensuring that his wife will receive the largest possible survivor benefit if he dies first. Survivor benefits are worth 100% of what the deceased worker collected or was entitled to collect at the time of death, including any delayed retirement credits.
And even though the wife collected reduced retirement benefits early, her survivor benefits won't be reduced as long as she is at least full retirement age at the time she claims them.
Maximizing survivor benefits should be the primary motivation of most married couples when deciding when to claim Social Security benefits. In many cases, that means the higher-earning spouse should delay collecting benefits until 70, but the lower earner may want to go ahead and collect reduced benefits early.