Both spouses don’t always need to delay Social Security until 70

Sometimes it's better to coordinate claiming strategies where one collects spousal benefits.

It seems that 70 may be the new 66 when it comes to claiming Social Security benefits.

Several financial advisers have asked me about the wisdom of having both spouses delay claiming benefits until age 70. Although that would certainly maximize a couple’s Social Security benefits while they are both still alive, it’s not always the best move.

Sevasti Balafas, a financial adviser with Goalvest Advisory in New York City, presented the case of a married couple with two high earners. If they both waited until age 70 to claim their maximum Social Security benefits, they each would receive about $3,200 per month for a combined total of more than $76,000 per year.

“The current plan is to wait for each of them to turn 70 and file for Social Security at that point,” Ms. Balafas wrote. “Should they do anything differently?”

SIMILAR BENEFITS

With such similar Social Security benefits, I would not recommend that they both wait until age 70 to claim. Although it would give them a bigger combined monthly benefit while they are both alive, there would be virtually no survivor benefit because it is only paid out if it is larger than the surviving spouse’s own retirement benefit.

Survivor benefits are worth 100% of what the deceased worker was claiming—or entitled to claim—at time of death if the surviving spouse is at least full retirement age; less if claimed earlier.

In this scenario, the husband is 68 years old and the wife has reached her full retirement age of 66. Because they were both born before 1954, one spouse could claim spousal benefits once the other spouse files for benefits.

(More: A refresher course on Social Security claiming rules.)

Because the husband has already missed out on two years of potential spousal benefits, I suggest that he file for his benefits now at age 68. He would receive his full retirement age amount plus two years of delayed retirement credits which would boost his benefit by an additional 16%.

The wife, now 66, could then file “a restricted claim for spousal benefits” and collect half of her husband’s full retirement age amount (not half of his age 68 amount) and switch to her own maximum benefit at 70. The maximum spousal benefit is worth 50% of the worker’s full retirement age benefit even if the worker postpones his benefit until later.

Under this scenario, if the husband died first and the wife collected her maximum benefit at 70, she would not receive a survivor benefit because her own delayed retirement benefit would be larger. But if she died first, the husband would step up to a slightly larger amount based on the wife’s maximum benefit.

In the meantime, having the wife file a restricted claim for spousal benefits would give the couple four years of additional benefits that otherwise would have been left on the table. Assuming the husband’s full retirement age benefit amount is about $2,400 per month, that would give her $1,200 per month for 48 months — a total of $57,600 in spousal benefits before switching to her own maximum retirement benefit at 70.

ONE HIGH EARNER

Separately, Helen Mize, a financial adviser with Resource Consulting Group in Orlando, wrote to me with a question about her clients — a married couple where both spouses are 67 and still working. The husband is the higher earner of the two. The wife’s Social Security benefits are relatively low compared to her husband’s.

(More: Demand for Social Security advice growing.)

“The wife would like to start collecting spousal benefits now as they are worth more than her own benefits,” Ms. Mize wrote. “But the husband plans to wait until age 70 to claim his benefits,” she explained. “Does the husband have to start his Social Security to trigger his wife’s spousal benefits?”

Yes, the wife cannot collect spousal benefits until her husband claims his benefit. If the wife claims her own Social Security retirement benefit now, she could receive her full retirement age amount plus one year’s worth of delayed retirement credits which would increase her benefit by 8%. Or, because she is older than full retirement age, she could opt to collect the maximum six months’ worth of retroactive benefits in a lump sum. Going forward, her monthly benefits would be based on a claiming age of 66 and 6 months.

[More: Two wives, two sets of Social Security benefits]

Once her husband claims his benefit at 70, she will step up to a larger benefit equal to half of his age 66 (not age 70) benefit. If he dies first, she will receive a survivor benefit worth 100% of what he collected — including any delayed retirement credits — and her own smaller benefit would disappear.