Social security planning for couples approaching retirement

As retirement nears, couples face a myriad of choices, and few decisions have as lasting an impact on financial security as deciding when and how to claim Social Security benefits.

The strategies behind timing, understanding spousal benefits, and managing other income sources can make a significant difference in maximizing Social Security benefits over a lifetime.

Each couple’s situation is unique, requiring an informed, tailored approach to leverage the system effectively and secure a comfortable retirement.

Understanding spousal benefits and eligibility

A fundamental aspect of Social Security planning for couples is understanding spousal benefits, which offer married individuals a portion of their spouse’s benefit amount. For households where one partner earned substantially more over their lifetime, spousal benefits present a valuable opportunity to increase the total income received.

To qualify, a spouse seeking these benefits must be at least 62 years old, with the couple married for at least a year, and the working spouse meeting the minimum work credit requirements. Spousal benefits can reach as high as 50% of the working spouse’s full retirement benefit if claimed at full retirement age, which ranges from 66 to 67, depending on the year of birth.

This benefit can help couples balance income disparities, particularly if one partner was out of the workforce for significant periods.

For those who have previously been married, Social Security offers unique considerations. Individuals who were married for at least ten years and divorced for at least two years may qualify for benefits based on their former spouse’s earnings record, provided they have not remarried.

This provision allows those who spent years contributing to a marriage—and perhaps sacrificing potential income—an opportunity to receive a stable retirement income. This option can be especially helpful for those with lower earnings or limited retirement savings, as it provides access to additional income without affecting the former spouse’s own benefit.

These nuances underscore the importance of understanding spousal benefits and how they can enhance the financial stability of couples in diverse marital and financial situations.

Deciding when to claim it

A significant decision for couples involves when to claim Social Security benefits, with early, delayed, and coordinated approaches each carrying distinct advantages and challenges. Although benefits become available at age 62, claiming early leads to permanently reduced monthly payouts.

For those needing immediate income or facing a shorter life expectancy, claiming early may be a viable option, but it’s important to remember that this choice locks in a lower benefit for life. This reduction can have lasting consequences, particularly for the surviving spouse, who might rely on this income in the absence of other resources.

On the other hand, delaying benefits until age 70 can yield a significant boost in monthly payments due to delayed retirement credits, which add approximately 8% per year to the benefit beyond full retirement age.

Delaying is often advantageous for the higher-earning spouse, as it maximizes the potential survivor benefit, providing a higher income stream for the spouse who may outlive them. The increased monthly amount can be crucial for financial stability in later years, particularly as healthcare expenses and other retirement costs arise.

For couples who can afford to wait, this strategy offers a way to ensure more substantial income over the long term, particularly for the surviving spouse.

For some, a coordinated approach provides an effective middle ground, balancing the need for immediate income with the benefits of delayed claiming. In this scenario, one spouse claims benefits early while the other delays until age 70, ensuring that one income stream begins while the other grows.

This strategy requires careful consideration of each partner’s health, life expectancy, and financial needs, as well as other income sources. The flexibility offered by this approach can be appealing for couples who want to start receiving benefits sooner while still allowing one spouse’s benefits to reach their maximum potential.

Earning limits and retirement income sources

A critical consideration for couples planning Social Security claims is the impact of earnings limits on benefits. For individuals who plan to work while receiving Social Security before reaching full retirement age, the system imposes an earnings cap. In 2024, for example, Social Security withholds $1 in benefits for every $2 earned above $21,240 for those who have not reached full retirement age.

However, once an individual reaches full retirement age, these earnings limits no longer apply, allowing recipients to earn an unlimited income without penalty. For couples where one or both partners intend to continue working past age 62, these earnings limits can play a major role in determining when to claim benefits.

Managing other sources of income alongside Social Security also influences the timing and amount of benefits a couple might receive. Retirement accounts, such as IRAs or 401(k)s, and pensions can add significant income during retirement but may also increase the couple’s tax burden.

Up to 85% of Social Security benefits can be subject to taxes if total income, including withdrawals from retirement accounts, exceeds certain thresholds. This dynamic is an important factor for couples with substantial retirement savings, as it can significantly affect their effective income after taxes.

Policy changes and survivor benefits

Staying informed about changes in the Social Security system is also crucial for couples approaching retirement, as legislative updates and policy changes can affect benefit amounts, claiming rules, and retirement strategies.

For example, cost-of-living adjustments (COLAs) are typically applied to Social Security benefits to offset inflation, but the annual rate can vary significantly based on economic conditions. In years of high inflation, COLAs provide a critical boost to monthly benefits, helping retirees maintain purchasing power.

However, COLA rates are not guaranteed to increase at the same pace as expenses in every year, requiring couples to adjust their plans as needed.

Moreover, potential policy shifts and proposed legislation can introduce changes that may alter retirement strategies. For example, there is frequent discussion about adjusting the full retirement age, restructuring benefits, or changing Social Security taxation rules.

These potential changes make it imperative for couples to consult financial advisors or Social Security specialists who stay up-to-date on policy developments.

Advisors can provide tailored guidance based on current laws and anticipated changes, allowing couples to create a strategy that maximizes their benefits within the existing regulatory landscape.

One of the most important aspects of Social Security planning is considering survivor benefits, which can help ensure financial stability for a surviving spouse. Survivor benefits allow the surviving spouse to receive the higher of their own benefit or that of their deceased spouse.

This feature becomes especially valuable if the higher-earning spouse delayed claiming benefits, resulting in a larger monthly payment. Planning for survivor benefits can help alleviate the financial burden on the surviving spouse, particularly as they adjust to a reduced household income and potential increased healthcare needs.

The value and flexibility in social security planning

Couples should consider the advantages of working with professionals to navigate Social Security’s complexities. Financial advisors with expertise in Social Security and retirement planning can offer personalized insights that account for a couple’s unique circumstances.

Advisors assess factors such as tax implications, life expectancy, income sources, and retirement goals to develop a comprehensive strategy. This expertise can help couples make informed decisions that optimize Social Security income, minimize taxes, and provide for future needs.

Planning for Social Security is a dynamic process that often requires ongoing adjustments. Couples should stay engaged with their retirement plans and remain informed about policy updates or changes that may affect their benefits.

Life circumstances such as health changes, career shifts, or economic fluctuations may prompt reconsiderations of initial claiming strategies. By staying flexible and revisiting their plans as needed, couples can adapt to changes and secure a financially stable retirement.