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Commentary & Insights

Insight, Financial Planning

Better Together: How Couples Can Optimize Their Social Security Benefits

11 December 2023
couple analyzing computer

"Yes, there are two paths you can go by, but in the long run, there's still time to change the road you're on."
– Led Zeppelin 

By: Jack Rabuck

Walk down the aisles in a modern grocery store and it is hard not to be astounded by the sheer quantity of choices at your fingertips. If your store has a Starbucks inside? Over 383 billion ways to customize your coffee.

When we start combining options; the roast, the milk, the syrup, and the sweetener, the sheer number of possibilities quickly grows overwhelming. We see the same phenomenon in many areas of life, not least in our finances. 

For a single person, the choice of when to claim Social Security often requires careful thought and analysis. But for a married couple, the many permutations of choices available can start to boggle the mind.

As we often have to caveat when we look at rules of thumb, your situation certainly varies from any other couple’s, so this is not advice. However, when it comes to Social Security claiming strategy for married couples, we can follow some guidelines that are likely to help us maximize expected benefits.

With a married couple, it almost always makes sense for the higher earning spouse to wait as long as possible (i.e., 70) to claim their benefit…what we find is that the lower earning spouse will be best served by claiming Social Security sometime between the earliest they can, age 62, and age 66 or so.

When we talk about Social Security, we always have to use the word ‘expected’ because the lifetime benefits vary depending on how long you live – a variable we just don’t know. But, luckily for us, we can use the fact that Social Security is tuned to individual life expectancy to our advantage.

Two Key Facts:

One: Claiming as an individual is meant to be (on an expected basis) fair no matter when you claim between 62 and 70. 

Two: One spouse can inherit the other’s benefit if it is higher.

Put together, these two facts can create a claiming strategy that is statistically superior.

Depending on the assumptions we use in an analysis, for a single person, the choice to defer benefits typically breaks-even between about age 80 and 84, which is close to the life expectancy for the average 62-year-old in America.

Strategy:

With a married couple, it almost always makes sense for the higher earning spouse to wait as long as possible (i.e., 70) to claim their benefit.

This is because their benefit will be around for as long as either member of the couple is alive – not merely their own life expectancy, but for the longer of two life expectancies! If the spouse with the higher benefit lives the longest of the couple, of course their benefit will stick around with them. But, even should the person with the higher benefit die first, their benefit lives on and goes to their spouse as a survivors benefit. The life expectancy for a 65 year old couple is close to 92. Ten years longer than the likely breakeven! 

This makes it a pretty big slam dunk in most cases for the spouse with the bigger benefit to defer.

This math also cuts the other way. The spouse with the lower benefit, whether claiming their own or claiming the spousal benefit, is only going to have their benefit around until one member of the couple dies. Just like how this pushes the expectancy for the larger benefit out longer, this means the lower benefit is expected to be around for a shorter amount of time.

In general, this means that claiming earlier is typically more efficient for the spouse with the lower benefit. The math can be a little complicated if they are claiming the spousal benefit and therefore can only claim if the higher earning spouse is claiming their benefit, too. Even with our general guidelines, we still need to consider individual factors!

However, most of the time when running the numbers, what we find is that the lower earning spouse will be best served by claiming Social Security sometime between the earliest they can, age 62, and age 66 or so. Waiting longer than that tends to reduce expected value from Social Security.

Of course, we don’t need to do the thing that maximizes expected value – some people choose to claim earlier than “optimal” for fear of changes to the system or lower life expectancy than average, and others choose to delay both benefits as long as possible as a form of insurance against both spouses living very long lives, in which case they will have expenses to pay for a longer time! Few approaches are intrinsically right or wrong. Starting by understanding the theoretically optimal decision can let you adjust as appropriate for your own situation and preferences.