Key Points
Sometimes, the best approach is for the lower-earning spouse to file earlier while the higher-earning spouse waits until 70.
The goal is to plan a budget that works for the couple while they're both alive, and for the survivor when one dies.
When one spouse dies, the other is left with the larger of the two Social Security benefits.
- The $23,760 Social Security bonus most retirees completely overlook ›
For decades, the conventional wisdom has been to delay Social Security until age 70 to maximize your monthly benefit. The advice continues to be sensible for many, but not for everyone.
If you're married, the question becomes whether both you and your spouse should delay Social Security until age 70, or if there's a better approach.
Will AI create the world's first trillionaire? Our team just released a report on the one little-known company, called an "Indispensable Monopoly" providing the critical technology Nvidia and Intel both need. Continue »
Image source: Getty Images.
The math
There's a clear financial benefit associated with waiting until age 70 to claim benefits. For every year you delay Social Security past your full retirement age (FRA), your benefit increases by 8%. Let's say your FRA is 67 (FRA for those born in 1960 or later), and you are due to receive $2,500 per month. Waiting until age 70 to claim means receiving $3,150 per month instead.
However, it's not right for everyone.
Planning for the survivor
Here's where it becomes tricky. As you're planning for retirement, it's not enough to simply create a budget that includes Social Security income from both spouses. It's vital to remember that one of you is likely to outlive the other and will need enough income to live on.
When one spouse dies, the surviving spouse receives the higher of the two Social Security benefits. Due to the loss of one Social Security check and paying taxes as a single person, household income typically drops by 30% to 40% when the first spouse dies. However, household expenses rarely drop by the same percent, creating what's called the "widow's penalty."
Part of planning for retirement for a married couple is determining how the remaining spouse will continue to cover expenses and enjoy their life. For many -- especially those without other meaningful sources of income outside of Social Security -- waiting until 70 for the higher-income earner to claim benefits leaves the surviving spouse in better financial shape.
With that said, it's not always black and white.
What happens when both spouses wait
There are both pros and cons associated with both spouses waiting to claim benefits, including:
Pros
- Each spouse receives maximum Social Security benefits.
- The remaining spouse receives the highest possible survivor benefit.
- The couple receives the maximum inflation-protected income.
Cons
- If the couple doesn't plan to continue working past FRA, waiting three additional years to claim benefits would require another substantial retirement account to bridge the income gap.
- Waiting may force early withdrawal from a tax-deferred account, increasing taxes.
- There's the "opportunity cost" of taking withdrawals when retirement savings could be otherwise invested.
- Waiting doesn't make sense if the lower earner has a limited work history and doesn't expect to receive much in benefits.
What happens when the higher earner delays until age 70, and the lower earner claims earlier
Research shows that this approach is optimal in approximately 60% to 70% of married couples. Here are the pros and cons:
Pros
- Maximizes survivor benefit if the higher earner dies first, because the survivor is left with the larger of the two benefit amounts.
- Provides immediate household income at a critical time before age 70.
- Reduces the need to draw down retirement savings earlier than planned.
Cons
- The lower earner receives a permanently reduced benefit.
- There's a slightly lower household income while both spouses are still alive.
Ultimately, because there are so many variables in play, the "right" decision for you depends on your specific circumstances. One of the best things you can do before claiming Social Security is to meet with a financial planner who can help you identify any gaps in your plan.
The $23,760 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income.
One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these strategies.
View the "Social Security secrets" »
The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
