Age differences can muddle Social Security-claiming strategies

Married couples should focus on maximizing survivor benefits.

When explaining how to use creative claiming strategies to maximize Social Security benefits, I always stress that an individual must be at least full retirement age — currently 66 — to take advantage of these income-boosting options.

Hypothetical examples are often neat and clear-cut: When spouse A, who is 66, does this, spouse B, who is also 66, can do that.

Unfortunately, real life isn’t always so clear-cut.

I received a question from a reader named Chuck the other day.

He will turn 66 in January, and his wife will turn 64 in February. Both of them plan to continue working for four more years, and Chuck’s income is substantially larger than hers.

“Is there a downside if I file and suspend at 66, and she takes a spousal benefit and continues to work?” he asked. “Are we both preserving our potential to max out our benefits at 70?”

No, but that might be OK.

In this situation, Chuck could file and suspend at 66 to trigger spousal benefits for his wife and defer collecting his own retirement benefit until 70, when it will be worth 132% of his full retirement age benefit, plus any intervening cost-of-living adjustments.

But because his wife would be only 64 at the time — two years younger than her full retirement age — she wouldn’t be able to restrict her claim to spousal benefits only. She would be required to collect her reduced retirement benefit first, possibly topped off by a spousal benefit.

Because she would collect spousal benefits two years before her full retirement age, they would be worth 41.7% of Chuck’s full retirement age benefit instead of the usual 50% (if she had waited until 66 to claim).

In the above scenario, she wouldn’t be able to maximize her own benefit. And she would be subject to the earnings cap restrictions, which could reduce her benefit.

But her earnings aren’t very high, so the impact would be minimal.

But that doesn’t really matter.

Married couples should look at their Social Security-claiming strategies as a joint decision. The goal should be for the bigger earner — Chuck in this case — to maximize his benefit if possible, which he could do by deferring his claim until 70.

Although his wife’s retirement benefit would be reduced if she collected benefits before her full retirement age, there is a good chance that she will outlive Chuck. At that point, she would collect a survivor benefit worth 100% of what he collected or was entitled collect at the time of his death — including any delayed retirement credits — and her smaller retirement benefit would disappear.

By maximizing his retirement benefit, Chuck also is maximizing any possible survivor benefit for his wife. And even though his wife’s retirement benefit would be permanently reduced if she collected them before her full retirement age, her survivor benefit wouldn’t be reduced as long as she was at least full retirement age at the time she began collecting them.

I also told Chuck that if his goal was to maximize benefits for both spouses, he should wait until 68 to file and suspend when his wife will be 66. At that point, she could file a restricted claim for spousal benefits and defer her own until 70.

Of course, that would only make sense if her own enhanced benefit at 70 is worth more than half his primary insurance amount, which is what her spousal benefit would be worth at her full retirement age.

Another reader, Carolyn, asked for claiming advice for her clients.

The husband is 68 and hasn’t yet claimed his Social Security benefits. His wife is 53.

“I believe he can claim a spousal benefit worth half of her full retirement benefit once she turns 62, but by that time, he will be older than 70 and claiming his own benefit,” Carolyn wrote. “I assume there is no way now that he can collect half of her benefit, correct?”

That is right.

There is no way for the older husband to restrict his Social Security claim to half of his younger wife’s benefit. However, given their age difference, it is most important for him to maximize his benefit by waiting until 70 to claim, locking in the largest possible survivor benefit for her.