SSI Planning For Couples

When planning for retirement, it’s crucial to include Social Security Planning for Couples in your strategy. This aspect of financial planning is vital because, while Social Security benefits are issued to individuals, the rules for spousal and survivor benefits require husbands and wives to coordinate their benefits and make claiming decisions together.

Social Security, first established in 1935, was created as a cornerstone of financial security for retirees. It was designed to provide a foundational income for those who had spent their lives working, ensuring they could maintain a basic standard of living during retirement. This program has since become a vital safety net, offering peace of mind and financial stability to millions of Americans in their later years.

In 1939, Social Security expanded to include benefits for spouses, survivors, and minor children. At that time, most married women didn’t work outside the home, so the spousal benefit was introduced to provide wives with 50% of their husband’s Social Security benefit, even if they had never been employed. Additionally, if a worker died at a young age, benefits would be paid to their children until they turned 18, as well as to the mother caring for them. The mother’s benefits would pause when the child turned 16, then resume once she reached full retirement age.

Interestingly, the original creators of Social Security likely didn’t anticipate that retirees might still have young children, but these rules still apply today. If you’re old enough to collect Social Security retirement benefits and have minor children, your kids may also be eligible for benefits. However, there’s a crucial detail to consider: in order for your children to receive these benefits, you must file for your own. Be cautious, though—it’s generally not advisable to file for a permanently reduced benefit at 62 just to secure a few extra years of children’s benefits.

You Won’t Outlive Your Social Security Benefit

Social Security is one of the rare sources of income that you can never outlive. If you’re concerned about exhausting your personal assets in old age, Social Security offers peace of mind, as it provides a steady income stream that continues until the end of your life. The longer you live, the more you’ll receive from the system.

For example, if your benefit starts at $2,000 per month, living another 10 years would yield nearly $300,000 in lifetime benefits. If you live for 20 more years, that amount doubles to nearly $600,000. And if you live for 30 more years, you’ll accumulate nearly $1 million in total benefits. This estimate assumes an annual cost-of-living adjustment (COLA) of 2%.

An Annual Cost Of Living Adjustment is Build In

Social Security includes annual adjustments for inflation. If your benefit starts at $2,000 per month, and the annual cost-of-living adjustments (COLAs) average 2%, your monthly benefit would increase to $2,438 in 10 years. After 20 years, it would rise to $2,972, and in 30 years, your monthly check would reach $3,623.

While it’s impossible to predict future COLAs with certainty, a 2% increase is a reasonable estimate.

Here Are a Some of Key Social Security Terms You Should Know:

Full Retirement Age (FRA):
Full retirement age refers to the age at which you become eligible to receive your full, unreduced Social Security benefits. Historically, the FRA was set at 65 for everyone. However, in 1983, Congress raised the FRA, and this change is being gradually phased in. If you were born between 1943 and 1954, your FRA is 66. For those born in 1960 or later, the FRA is 67.

The age at which you can start full, unreduced benefits

Primary Insurance Amount (PIA):
The primary insurance amount is another crucial concept. Your Social Security benefits are calculated based on your work history, specifically your highest 35 years of earnings. The more you earned annually, up to the Social Security maximum, the higher your benefit will be. Social Security continuously updates your earnings record, even if you continue working into your 60s and 70s, or after you’ve started receiving benefits. So, if you’re looking for ways to increase your Social Security benefit, one option is to keep working.

To find your PIA, refer to your annual Social Security statement. The PIA is the benefit amount you’ll receive at your full retirement age. For example, if your benefit at full retirement age is listed as $2,119 per month, that figure is your primary insurance amount.

Considering Early Social Security Benefits?

Your Primary Insurance Amount (PIA) is not necessarily the benefit you’ll receive unless you apply for Social Security at your exact full retirement age (FRA), which could be 66 or 67. If you apply before reaching your FRA, your benefit will be reduced. For example, if your FRA is 66 and you claim benefits at age 62, you’ll receive just 75% of your PIA. So, with a PIA of $2,400, your permanent monthly benefit would be $1,800. While the difference may seem small now, claiming early can significantly reduce your total benefits and monthly income over time.

What Happens If You Apply Before Your Full Retirement Age?

If your full retirement age is 67—meaning you were born in 1960 or later—you’ll face a larger reduction if you claim your benefits early. For example, if your primary insurance amount (PIA) is $2,400 and you decide to apply at age 62, your benefit will be reduced to just 70% of $2,400, giving you $1,680 per month.

Reasons to Avoid Filing Before Your Full Retirement Age (FRA)

From the Social Security system’s perspective, it doesn’t matter whether you file for benefits at age 62 or at your full retirement age of 66 or 67. The system is designed by actuaries who have calculated benefits based on average life expectancies. If you live to that average, there’s no difference to the system whether you start receiving smaller checks earlier or larger checks later.

However, the key point is that no one fits perfectly into this statistical average. Half of you will live longer than the average life expectancy. For baby boomers, the biggest risk is outliving their income. When planning for Social Security, it’s wise to plan for a long life. Instead of asking, “What if I die tomorrow?” it’s more prudent to ask, “What if I live a very long time?” Then, choose the strategy that will provide the most income in the event you do.

Second, if you file for Social Security before full retirement age and you continue to work, some or all of your benefits will be withheld. One dollar in benefits will be withheld for every $2 that you earn over the earnings test amount, which is $22,320 in 2024. Now, this is not a reason not to work, because if your benefits are withheld, the actuarial reduction for those months will be made up when your benefit is recomputed at full retirement age. The old way of thinking was to apply for Social Security at 62 and try not to earn too much so you could keep all of your Social Security. This is not conducive to long-term financial security. The new way of thinking is to keep working as long as possible and apply for Social Security as late as possible because you’re probably going to need that extra income later in life.

Another reason not to file before full retirement age is that you won’t be able to take advantage of some of the spousal strategies that we’re going to be talking about in a few minutes. We’ve encountered many people who filed for Social Security at 62 who then find out about savvy strategies for spousal benefits. If they’ve already filed for early benefits they can’t take advantage of them.

And finally, if you are the high-earning spouse of the family, filing for early reduced benefits will lower your spouse’s survivor benefit if you die first. This is one of the most important reasons not to file for Social Security before full retirement age. We’ll be talking more about this later.

What Happens If You Apply After Full Retirement Age?

You’ve already seen the impact of filing for Social Security benefits before reaching full retirement age (FRA). But what if you choose to apply after FRA? Here’s what you need to know:

If you apply for Social Security benefits after reaching your FRA, your benefit amount will increase by 8% per year until you turn 70. For example, if your Primary Insurance Amount (PIA) is $2,400 and you apply for benefits at age 70, your monthly benefit will be 132% of $2,400, which equals $3,168. This amount does not include cost-of-living adjustments (COLAs). By age 70, your benefit will be even higher due to COLAs.

Consider this scenario if your FRA is 67: You’ll still receive 8% annual delayed credits, but for three years instead of four. So, if your PIA is $2,400 and you apply at age 70, your benefit will be $2,976 per month, plus any cost-of-living adjustments.

To illustrate the long-term impact, let’s compare the benefits:

Starting Benefits at Age 62: With a PIA of $2,400, you’d receive $1,680 per month. By age 85, this amounts to $483,840 in total benefits (not accounting for COLAs).
Starting Benefits at Age 70: With a PIA of $2,400, your benefit would be $2,976 per month. By age 85, this totals $571,392 in benefits.

When accounting for COLAs, which are typically based on inflation, the difference becomes even more significant. Assuming an average annual COLA of 2%:

Starting at Age 62: By age 85, your monthly benefit could rise to $2,756, with cumulative benefits reaching $638,082.
Starting at Age 70: By age 85, your monthly benefit could increase to $4,882, with cumulative benefits totaling $811,419.

As you can see, the gap between benefits grows wider when COLAs are factored in.

You might wonder about the scenario if you don’t live to age 85. If you’re the higher-earning spouse and pass away before 85, your benefit will transfer to your spouse. The critical factor is not just how long you live but how long at least one of you lives. If either spouse survives to age 78 (the breakeven point), delaying benefits until age 70 generally results in greater overall benefits. If you’re the higher-earning spouse, your benefit amount will be preserved and continue to provide financial support for your spouse if you pass away first.

When to Apply for Social Security: Key Points to Consider

Deciding when to apply for Social Security is a complex decision that benefits from personalized analysis. However, here are a few essential points to keep in mind:

Early Application Consequences: If you choose to apply early, your benefit will be a reduced percentage of your Primary Insurance Amount (PIA) and will remain fixed for life. The initial benefit amount is set at the time of application and will only increase with annual cost-of-living adjustments (COLAs).
Impact of COLAs: Cost-of-living adjustments can amplify the effects of whether you retire early or delay benefits. As COLAs are applied to either the lower or higher initial benefit, the gap between early and delayed retirement benefits widens over time.
Effect on Survivor Benefits: The timing of your application also affects survivor benefits. The higher-earning spouse should consider delaying benefits to boost the survivor’s income. This strategy ensures that the higher benefit amount is preserved, providing additional financial security for the surviving spouse. Delaying benefits can essentially serve as a form of cost-free life insurance.

Spousal Benefits

With the basics covered, let’s dive into spousal benefits. These benefits aren’t just for non-working spouses anymore; there are strategic ways for married couples to make the most of them.

It’s important to note that same-sex marriage is legally recognized in all states following a Supreme Court ruling. This means same-sex couples who are legally married can access spousal and survivor benefits just like any other married couple.

In essence, spousal benefits are available to the spouse of a worker who is eligible for Social Security benefits. To qualify, the worker must be both eligible for Social Security and have filed for benefits. If your spouse is 62 but hasn’t filed for benefits yet, you cannot claim spousal benefits at that time.

For example, consider Jack and Jill, who are both at full retirement age. Jack, who has paid into Social Security throughout his career, has a primary insurance amount (PIA) of $2,400. Jill, who has never worked, can file for a spousal benefit once Jack files for his Social Security benefits. Jill’s spousal benefit will be 50% of Jack’s PIA, which amounts to $1,200.

Impact of Filing Age on Spousal Benefits

The spousal benefit can be affected by the age at which the spouse claims it. If Jill applies before reaching her full retirement age, her benefit will be reduced. After reaching full retirement age, the maximum spousal benefit remains at 50% of the worker’s PIA, even if the spouse files later. Also, if Jack delays his benefits to earn delayed credits, Jill’s spousal benefit will still be 50% of Jack’s original PIA, not the increased amount due to delayed credits.

The Evolving Workforce

Another factor to consider is the increasing number of women in the workforce. In 1950, women made up only 30% of the labor force; today, they represent nearly 50%. This shift means that more women now qualify for Social Security based on their own work records. In 1970, only 63% of women qualified for Social Security benefits on their own earnings. Today, that number has risen to 86%. Consequently, both spouses might be able to coordinate their individual earned benefits with their spousal benefits to optimize their Social Security strategy.

What if the spouse is also eligible for Social Security benefits based on their own work record?

In this case, the spouse will first receive their own benefit amount. If they claim benefits before reaching full retirement age, this amount will be reduced accordingly. However, if the spousal benefit based on the other spouse’s record would be higher, they will receive an additional amount to make up the difference, provided they have already filed for benefits. This additional amount is known as the spousal add-on.

Here’s an example: Jack and Jill are married. Jack is past full retirement age, and Jill is 62. Jack’s Primary Insurance Amount (PIA) is $2,400, while Jill’s PIA is $800. When they both apply for benefits, Jill will receive her own reduced benefit of $560, which is 70% of her $800 PIA. Additionally, she will get a spousal add-on of $260, making her total benefit $820.

To calculate the spousal add-on, take half of Jack’s PIA, subtract Jill’s PIA from it, and then apply a 65% reduction for early claiming. This formula ends up providing Jill with about 34% of Jack’s PIA.

Remember, Jill is not choosing between her own benefit and the spousal benefit; she is receiving a combination of both.

When should each spouse claim Social Security benefits?

Claiming Strategies for Couples

The timing of when each spouse claims Social Security can significantly impact your overall benefits and lifetime income. The optimal strategy depends on your goals: Do you want to maximize your lifetime benefits? This typically means delaying benefits to receive a higher amount later. Alternatively, do you prefer to start receiving benefits as early as possible? This will give you more immediate income but less over time. While claiming early can provide more income now, it often results in lower benefits later and doesn’t keep pace well with inflation. A hybrid approach, which combines early and delayed claiming, can offer a balance of current and future income. Let’s examine a few strategies.

Claiming Strategies Examples

Example Scenario:

Joe and Jane are both 58. Joe, the higher earner, has a Primary Insurance Amount (PIA) of $2,400 and a life expectancy of 85. Jane, with a PIA of $800 and a life expectancy of 95, has also worked and contributed to Social Security. These details will be used to analyze different claiming strategies.

Maximum Benefit:

If Joe claims benefits at 70, he’ll receive $2,976 per month, thanks to three years of 8% annual delayed credits. Jane’s benefit would be $1,200, which is 50% of Joe’s PIA. These amounts do not include potential cost-of-living adjustments, so they may be higher by the time they turn 70.

Earliest Benefit:

If Joe claims at 62, his benefit would start at $1,680, which is 70% of his PIA, and this amount would remain permanent. If Jane claims at 62 as well, she would receive a combined benefit of $820, which includes her reduced benefit of $560 and a spousal add-on of $260. This benefit remains unchanged until Joe’s death, after which Jane would receive his higher benefit.

Hybrid Strategy:

With the hybrid approach, Joe waits until 70 to claim his maximum benefit, while Jane claims at 62 to start receiving income sooner. Jane would receive a reduced benefit of $560 initially. Once Joe starts his maximum benefit at 70, Jane’s spousal benefit would be calculated as $400 (the difference between half of Joe’s PIA and Jane’s PIA), bringing her total benefit to $960. This strategy provides earlier income with a higher future benefit.

Comparing Strategies

Lifetime Benefits Chart:

A chart comparing these strategies shows Joe’s benefits in green and Jane’s in yellow. If Joe claims at 70, he maximizes his benefit, which Jane will inherit upon his death. If both claim later, Jane’s income is higher due to Joe’s delayed claiming. The hybrid strategy shows an initial income increase for Jane at 62, followed by a steep rise when Joe claims at 70, leading to cumulative benefits exceeding $1 million by the end of Jane’s life expectancy.

First-Year Survivor Benefit:

It’s crucial to consider how claiming age affects survivor benefits. If Joe claims at 62 and then passes away, Jane’s survivor benefit would be around $23,000 annually. However, if Joe claims at 70, her survivor benefit would increase to over $35,000. This demonstrates the impact of claiming age on survivor income, emphasizing the importance of considering long-term implications when making claiming decisions.

Your Customized Claiming Scenario:

These examples—maximum, earliest, and hybrid—are not exhaustive. We can explore other claiming scenarios tailored to your specific situation and provide a customized report comparing them. This will help you determine the best strategy for your circumstances.

Survivor Benefits

Let’s dive into Social Security survivor benefits. It’s important to plan for the likelihood that one spouse will outlive the other. You might already have some estate planning in place, but ensuring the surviving spouse has adequate income is crucial.

Survivor benefits are designed to provide ongoing income for the surviving spouse, typically for life. In planning for this, it’s essential to maximize these benefits to ensure the surviving spouse is financially secure after the other’s passing.

Factors Affecting Survivor Benefits

The amount of the survivor benefit depends on two key factors:

When the Deceased Spouse Claimed Benefits: This is known as the “original” benefit. If the deceased spouse claimed their benefits at an earlier age, the survivor benefit will be lower compared to if they had waited until later.
When the Surviving Spouse Claims the Benefit: This is known as the “actual” benefit. If the surviving spouse claims the benefit before reaching full retirement age, the amount will be reduced.

For instance, if one spouse claimed their benefits at age 62 and lived another 20 or 30 years, the survivor benefit for the remaining spouse will be based on that reduced amount, even though it will be claimed years later.

Example Scenario

Consider Joe and Jane. Joe’s Primary Insurance Amount (PIA) is $2,400. If Joe passes away at age 70 and he had claimed his benefits at that age, Jane’s survivor benefit would be $2,976. However, if Joe had claimed his benefits at age 62, Jane’s survivor benefit would be lower, at $1,980.

Which scenario would you prefer for Jane? Obviously, Joe claiming benefits at 70 would result in a higher survivor benefit for Jane. Therefore, delaying claiming Social Security benefits until age 70 can be a significant advantage for the surviving spouse.

Actual Survivor Benefit

Once Joe has passed away, Jane’s survivor benefit amount depends on her age when she claims it. If she claims it at age 60, the benefit will be reduced to $1,716. If Joe had claimed his benefits at 62, her maximum survivor benefit would be $1,980. However, if Joe had waited until 70 to claim his benefits and Jane claims at her full retirement age or later, she could receive up to $2,976.

The variation in benefit amounts—ranging from $1,716 to $2,976—illustrates how critical the timing of claiming benefits can be. These decisions will have a significant impact on Jane’s financial well-being later in life.

Key Points to Remember

1. Benefits Stop at Death

When one spouse dies, their Social Security benefits stop. This can have a significant impact on household income if both spouses were receiving benefits.

2. Survivor Benefits

The surviving spouse is entitled to receive a benefit equal to the deceased spouse’s benefit, but only if they were married. If you’re in a committed relationship but not married, consider how this might affect your decision to marry. Survivor benefits are also available if you remarry after age 60, provided the remarriage occurs after the divorce.

3. Choosing the Higher Benefit

If the surviving spouse’s own retirement benefit is higher than the survivor benefit, they will retain their own benefit. The higher benefit will prevail after the death of one spouse.

In summary, careful planning can help ensure that the surviving spouse has adequate income, and understanding the impact of claiming ages on survivor benefits is a crucial part of that planning.

Survivor Planning: Maximizing Social Security for the Surviving Spouse

Let’s wrap up with some key planning points. Given that one of you is likely to outlive the other, it’s crucial to plan for this eventuality while both of you are still in good health. Although survivor planning encompasses many aspects, we’ll focus on maximizing Social Security benefits for the surviving spouse.

For the Higher-Earning Spouse:

To maximize the survivor benefit, the higher-earning spouse should delay claiming Social Security until age 70. As highlighted earlier, the survivor benefit can vary significantly—ranging from 82.5% to 132% of the Primary Insurance Amount (PIA)—depending on when the higher-earning spouse claims their benefits. Many people do not consider how their claiming age affects their spouse’s future survivor benefit, so it’s important to be aware that waiting until age 70 can significantly enhance the survivor benefit.

For the Longer-Living Spouse:

If you are the spouse who is likely to outlive the other, aim to file for your survivor benefit at full retirement age or later. Ideally, this will be many years after reaching full retirement age, but if your spouse passes away before you reach this milestone, waiting until you are of full retirement age to start claiming the survivor benefit will ensure you receive the maximum possible amount.

For the Lower-Earning Spouse:

If you are the lower-earning spouse, consider filing for your own retirement benefit at 62 while waiting to reach full retirement age. This approach will provide some income between ages 62 and 66 without reducing the survivor benefit you would receive later.

Planning for the Loss of One Benefit:

Regardless of how you plan to maximize the survivor benefit, you need to prepare for the impact of losing one Social Security benefit. If Jane switches to her survivor benefit, her own benefit will cease. Conversely, if she keeps her own retirement benefit because it’s higher, Joe’s benefit will end. Since many couples rely on both Social Security checks to cover household expenses, losing one benefit can significantly affect the surviving spouse’s standard of living.

This concludes our discussion on Social Security survivor benefits. We hope this information helps you make informed decisions and plan effectively for the future.

Summary: Social Security Planning for Couples

Before we conclude, let’s review the key points of Social Security planning for couples:

1. Plan as a Couple

Make your Social Security claiming decisions with your partner in mind. While benefits are paid individually, one spouse’s decisions can impact the other’s income, especially regarding survivor benefits.

2. Utilize Spousal Benefits

Take advantage of available spousal benefits according to the rules. Strategies like “claim-now-claim-more-later” can help optimize your benefits, but navigating these rules can be complex. We can assist in developing effective strategies, or you can consult Social Security personnel for guidance.

3. Prepare for Survivor Benefits

Consider the impact of one spouse’s death on Social Security income. When one spouse passes away, their Social Security check will stop, so it’s important to plan for this loss. Ensure the surviving spouse has alternative sources of income to maintain their lifestyle.

4. Integrate Social Security into Your Retirement Plan

Social Security alone is often insufficient for covering all expenses. Develop a comprehensive retirement income plan that includes Social Security and other sources of income, such as pensions, retirement accounts, and investments. We can help you design a plan that integrates Social Security with your other resources to provide financial stability throughout your retirement.

By addressing these aspects, you can create a more secure and effective Social Security strategy for both you and your partner.

Planning for retirement is a responsibility that should be taken seriously, and choosing the right retirement annuity can be a prudent decision. Retirement annuities, acting as personal pension plans, provide a guaranteed income for life, bringing a sense of financial security and stability to retirees. As with any financial decision, it is essential to consult with a qualified financial advisor to assess individual needs and make informed choices. By harnessing the power of retirement annuities, individuals can confidently embrace their well-deserved retirement, knowing that their financial future is in capable hands.

Talk to Hazard & Siegel when you need a comprehensive lifetime financial solution.