When Husband and Wife Receive Social Secuirty: Coordinating Benefits
You know that there are quite a few components to keep in mind as you and your spouse plan for your Social Security retirement benefits. It can be quite a challenge to work through all of them on your own. I recently ran across some old notes that I had from a seminar I attended that included a guideline that you might find helpful as you plan. The point of this rule of thumb is to attain the highest benefit for the longest surviving spouse.
The Spousal Coordination Rule of Thumb
First of all, we have to make some assumptions: we assume that the spouses are the same age (within a year); we’re using the rate of inflation as the rate to discount future money to present value; we assume that any money received in Social Security benefits is offset by not taking that same amount from your savings; in order for the rule to work, your savings must earn at least 1% more than the rate of inflation; and lastly, we are not making a “guesstimate” of the date of death for either spouse.
So here’s how it goes: if the lower Primary Insurance Amount (PIA) is greater than 1/3 of the higher PIA, then the lower earner should take benefits on his or her own record at age 62. Then the higher earner takes advantage of the Spousal Benefit upon reaching Full Retirement Age (FRA). Finally, the higher earner takes his or her own benefit at age 70, maximizing his or her lifetime benefit (and his or her spouse’s Survivor Benefit). If appropriate, that is to say, if the amount of the lower earner’s benefit is less than 50% of the higher earner’s benefit upon taking it at age 70, the lower earner should also take the Spousal Benefit at that time.
On the other hand, if the lower PIA is less than 1/3 of the higher PIA, once again the lower earner begins taking his or her own benefit at age 62, as soon as eligible. The higher earner files and suspends at FRA, providing a base for the lower earner to begin taking the Spousal Benefit at that time. And finally, the higher earner takes his or her own benefit at age 70, again maximizing the lifetime and Survivor’s benefits.
I won’t go into the details of all the specific calculations required for these two tactics to work their magic – because as with all rules of thumb there are bound to be specific differences in your own situation that will impact the outcome. Use these rules as a guide to help you think about the options, but put a pencil to the actual figures for your situation and make sure that they make sense for you. And if you need help – well, you know where to find me, right?