INmail: Delaying Social Security protects the younger spouse

To maximize benefits over the couple’s joint lifetimes, claiming her Social Security benefits early will likely result in the largest payout.

Brian: We have a male client who is 69, still working and has not yet claimed Social Security. He is in good health and doesn’t necessarily need cash. His wife is 60 and has never worked outside the home. What would be their best strategy for claiming Social Security?

MBF: Given that your 69-year-old client doesn’t need the money now and that he’s substantially older than his wife, it’s probably best that he continues delaying Social Security until 70 when it would be worth the maximum amount.

If the wife has no Social Security benefit of her own, she can’t collect spousal benefits until her husband claims his. Assuming she was born in 1961, her full retirement age is 67. If she claims her Social Security at the earliest possible age of 62, her spousal benefits would be worth 32.5% of her husband’s full retirement age amount (not his age 70 amount). If she waits until her full retirement age of 67, her spousal benefits would be worth 50% of his full retirement age amount.

If the husband dies first, her survivor benefit would be worth 100% of his age 70 benefit. Even though she claims her retirement benefit early and they are permanently reduced, it won’t affect her survivor benefits if she is at least full retirement age when she claims them.

Assume the husband’s full retirement age benefit at 66 is $2,800 per month but he delays claiming until 70 when it is worth about $3,700 per month — a 32% increase due to four years of delayed retirement credits. If the wife claims Social Security at 62, her benefit would be worth about $910 per month. If her husband dies first, she would step up to a larger survivor benefit of about $3,700 per month.

To maximize benefits over the couple’s joint lifetimes, claiming her Social Security benefits early will likely result in the largest payout. But it could also boost their joint income, possible increasing their income taxes and future Medicare premiums.

A good compromise might be for the wife to file for Social Security at 65 when she enrolls in Medicare. If nothing else, it may cover most of her Medicare premiums, which are deducted directly from monthly Social Security benefits.

Mary Beth Franklin, a certified financial planner, is a contributing editor for InvestmentNews.