Spousal Benefits: An Often Overlooked Key to Maximizing Social Security Benefits for Couples (2024)

Assumptions:

• Mike, a sales manager, turns 65 this year—two years before his full-retirement age—and wants to retire early to enjoy his grandchildren
• Ann, a homemaker who raised four children, turns 62 this year, has some health issues, and worries about having limited benefits
• Mike and Ann only have a modest $60,000 nest egg

Option A: Early But Partial Spousal Benefits
Mike decides to keep working two more years until he reaches 67, his full-retirement age, which enables him to claim 100% of his benefit entitlement: $2,800 a month.

Despite Ann’s health issues, she decided to wait two years (until age 64) when Mike begins to collect his own benefit. By waiting a bit, she can claim spousal benefits based on Mike’s earnings history. But since her own full-retirement age is still three years away, she can collect only 41.66% of Mike’s benefit every month—or approximately $1,166.

Outcome: Claiming benefits at age 67 and 64, respectively, Mike and Ann will earn a joint monthly benefit of $3,966.

Nevertheless, Ann considers herself fortunate to receive even a reduced spousal benefit since (a) her sparse work history would have left her with almost no Social Security benefits of her own, and (b) she needs the money up front to take care of health concerns.

Option B: Taking a Chance on Waiting and Maximizing
Faced with health issues,Mike and Ann made a reasonable and necessary strategic decision with Option A, one that resulted in relatively smaller benefits. But what if their health and family circ*mstances changed, enabling each of them to wait a few more years? Waiting could open the door to a better maximum-benefit strategy.

Outcome: Mike holds out another five years until age 70 to collect his benefits. Instead of $2,800 a month, he now receives $3,527 a month. Ann waits five years until age 67, her full-retirement age, to collect her maximum 50% spousal benefit—$1,400 a month (half of her spouse’s full-retirement-age benefit of $2,800) instead of the $1,116 reduced spousal benefit under Option A. That’s a combined lifetime monthly income of $4,927 instead of the $3,966 they would receive under Option A.