Married couples have a unique advantage when it comes to Social Security benefits. They can potentially boost their combined benefits through strategic planning and timing of their filing elections. Spousal benefits add an extra layer of complexity to the decision-making process, but they also open up opportunities for maximizing your household’s retirement income.
Understanding how spousal benefit strategies might affect your filing election is crucial for making informed decisions about your retirement. These strategies can significantly impact your lifetime benefits, potentially adding tens of thousands of dollars to your retirement income over the years. Let’s explore how spousal benefits work and how they might influence your Social Security claiming strategy.
Understanding Spousal Benefits
Spousal benefits allow one spouse to claim the greater of their own benefit or 50% of the other spouse’s full retirement age benefit amount. Here are some key points to understand:
- Eligibility: You must be at least 62 years old and have been married for at least one year to claim spousal benefits.
- Maximum Benefit: The maximum spousal benefit is 50% of your spouse’s full retirement age benefit, but this is only available if you wait until your own full retirement age to claim.
- Benefit Eligibility: In order to receive this higher spousal benefit, the higher earning spouse must also be drawing.
- Early Claiming Reduction: If you claim spousal benefits before your full retirement age, the amount will be permanently reduced.
- No Delayed Retirement Credits: Unlike your own retirement benefit, spousal benefits do not increase if you delay claiming beyond your full retirement age.
How Spousal Benefits Affect Filing Decisions
Spousal benefits can significantly impact your Social Security filing strategy. Here are some additional realities to consider:
- Understanding Widow/Widower benefits: The surviving spouse receives the higher of the two benefits.
- Higher-Earning Spouse Delay: The higher-earning spouse might consider delaying their benefits to age 70, increasing not only their own benefit but potentially the survivor benefit for their spouse as well.
- Coordinate Claiming Ages: Couples might strategize to have one spouse claim earlier to provide income while the other spouse’s benefit grows.
- Ex-Spouse Benefits: Even if you’re divorced, you may be eligible for spousal benefits based on your ex-spouse’s record if you were married for at least 10 years and are currently unmarried.
Factors to Consider
When developing your spousal benefit strategy, consider these factors:
- Age Difference Between Spouses: The age gap between partners can influence the optimal filing strategy. If there’s a significant age difference, it might make sense for the older spouse to delay their benefit to age 70, potentially enabling the younger spouse to receive a higher widow/widower benefit.
- Individual Earnings History: The disparity in earnings between spouses can affect the best filing strategy. If one spouse has a much higher earnings record, it might be beneficial for the lower-earning spouse to claim spousal benefits.
- Life Expectancy: Family health history and current health status should be considered when deciding on a filing strategy. If one spouse has a shorter life expectancy, it might be advantageous for that spouse to claim benefits earlier.
- Current Financial Needs: Immediate financial requirements can influence the decision to employ short-term spousal filing strategies. Sometimes, the need for current income outweighs the potential for higher future benefits.
- Other Retirement Income Sources: The availability of other income sources, such as pensions or investment income, can impact the urgency of claiming Social Security benefits.
Potential Pitfalls to Avoid
- Overlooking the Earnings Test: If claiming benefits before full retirement age while still working, be aware of the earnings test, which can reduce benefits.
- Ignoring the Impact on Survivor Benefits: Remember that the choice of when to claim benefits can affect the survivor benefit for the remaining spouse.
- Failing to Consider the Tax Implications: Social Security benefits can be taxable, depending on your overall income. Consider how your filing strategy might affect your tax situation.
Be Aware of These Recent Changes
It’s important to note that some previously popular spousal benefit strategies, such as “file and suspend” and “restricted application,” are no longer available for most people due to changes in the law. However, there are still ways to optimize your benefits as a couple.
Work With Us
Navigating spousal benefit strategies and their impact on your Social Security filing election can be complex, but it’s a crucial part of maximizing your retirement income. The right strategy can significantly boost your lifetime benefits, providing greater financial security throughout your retirement years. However, the best approach depends on your unique circumstances, including your age, health, financial situation, and retirement goals.
At Brogan Financial, we specialize in helping couples navigate these important decisions. Our team of experienced advisors can analyze your specific situation, explain your options, and help you develop a Social Security claiming strategy that aligns with your overall retirement plan. Don’t leave these crucial decisions to chance. Contact us today to schedule a consultation and take the first step towards optimizing your Social Security benefits.
For more insights on retirement planning and financial wellness, tune in to ‘More Living with Jim Brogan’ every Saturday morning at 9 on 98.7 FM WOKI.