It’s common to view your social security from an individual perspective. After all, it’s the money you’ve worked hard to qualify for. But, if you’re in a loving relationship and have a partner who also qualifies for social security, it’s important to strategize how to maximize your two plans. Taking the right steps can ensure you both get the most money out of the program. Keep reading for five tips on how to approach social security for couples.
5 Tips for Maximizing Social Security for Couples
Here are the key steps you should take when planning out a strategy for social security as a couple:
1. Start With Understanding Your Estimates
You can’t make a plan without understanding what’s likely coming to both of you. Visit the Social Security Administration (SSA) website for an estimate of what you may receive. The SSA will provide estimates if you choose to claim benefits at 62, sometime during your full retirement age (66-67), or at 70.
Of course, you aren’t forced to claim at just these three options. You get to decide when you collect your social security anytime between 62 and 70. But these SSA estimates can guide you on what to expect.
2. Understand How Social Security Amounts are Calculated
Being strategic about your social security planning means you should have at least some foundational knowledge of how the system operates.
Here’s a quick rundown on how social security amounts are determined:
- The Social Security Administration calculates your average indexed monthly earnings (AIME) for the 35 highest-earning years of your income. Your overall payment will decrease if you have worked for less than 35 years.
- After the AIME is calculated, the SSA calculates your primary insurance amount (PIA). This is the amount you’ll receive if you opt to claim your social security benefits at full retirement age (FRA).
- If you choose to claim Social Security before your FRA of 66 to 67, your monthly payment will be reduced by up to 30% for the entire duration of your payout.
- Conversely, waiting beyond the full retirement age and waiting until 70 can make your PIA up to 24% higher.
- If you delay your Social Security benefits past your FRA, you can receive an extra 0.67% each month (equivalent to an extra 8% per year).
The age at which you and your partner choose to take your benefits will depend on several factors, including your health status, life expectancies, work history, retirement planning, and more.
3. Identify the Higher Earner
The higher earner is the person who comes back with a higher PIA from the SSA estimate. Generally speaking, the advice is to delay the higher earner’s collection until later and have the lower earner collect their payout first. This is because the higher earner has more to gain by delaying.
For example, let’s say Bob received an estimated PIA of $750 a month, and his wife Amy received an estimate of $1,000. If Bob waits until 70 to collect his money, his PIA could be as high as $930 monthly.
However, if Amy chooses to wait until she is 70, her PIA could be $1240. So waiting until 70 is a $180 monthly increase for Bob but a $240 monthly increase for Amy.
Additionally, don’t forget that the lower income earner can apply for spousal benefits later when their higher earning partner starts to collect their social security.
Of course, delaying the higher earner isn’t always possible. Some couples need both payouts to keep up with bills, so delaying is not an option.
But, if you’re considering delaying someone, carefully consider who is the smarter choice.
4. Know What Lowers Your Payments
Getting your social security estimates is a good starting point for retirement planning. But you mustn’t take that number for face value. Multiple things can, and probably will, lower your monthly payout, including:
- If you work while you’re collecting social security
- Owing federal or state taxes on your payout
- Medicare premiums
- If you have a government pension
5. Understand Timing
There are many factors to consider when planning to take out your retirement. Here are a couple of the most common scenarios:
- Both claim early (before full retirement age): Claiming early means you’ll get less than the full payment you’re entitled to if you want until full retirement. Still, this option is valid for people who may have planned and feel they have the extra financial cushion. Additionally, some people take this option if they are in poor health and expect to live only a bit longer.
- Both claim at full retirement age: This is an excellent option if both partners want to prioritize receiving their full payments.
- Both claim past full retirement age: Every month you go beyond full retirement age without collecting increases your PIA. However, this may mean you must continue working until you’re 70 or at least be able to support yourself for these years while waiting. Couples who are healthy and expect to live long should do all they can to wait to claim social security until they’re past their FRA.
- Staggering claim ages: You and your partner don’t have to claim at the same age. Often, the higher earner can benefit from holding off later to generate an even larger PIA. Additionally, remember that if one spouse passes, the surviving spouse is able to claim the higher monthly benefit for the rest of their life.
Hopefully, by now, you better understand what approach will work best for you as a couple. Remember to consider factors like how long you both expect to live and how much money you have to support yourself without social security (or with only one payment). Taking the time to make a strategy now will help ensure you have a comfortable and financially secure retirement where you can focus on enjoying each other’s company.
You might also be interested in: 7 Common Social Security Myths Debunked
