Should the Higher-Earning Spouse Delay Social Security?

I’ve been having a nice email dialogue with listener Bethany about her parents’ retirement situation, and she asked me:

Why do you typically recommend the higher Social Security spouse delay until 70? Is this just to ensure the longevity of their portfolio?

Great question!

Why do some financial planners suggest that in a married couple, the spouse with the greater Social Security benefit delay collecting until age 70, while the spouse with the lesser Social Security benefit starts collecting at age 62?

Here’s the simple reason the higher-earning spouse should (at least consider) delaying Social Security until age 70.

Mom, Dad, and the Bigger Benefit

An example will help. Let’s think about two people, MOM and DAD.

Mom has a smaller Social Security benefit.

Dad has a bigger Social Security benefit. Let’s just say Dad’s benefit is twice as large as Mom’s.

For both of them, no matter their benefit size, their “break-even” age is around age 80. This article shows you how that works:

“When Should I Take Social Security?”

For the sake of easy numbers, we’ll just say their breakeven age is 80 years old. That means, if we only consider their own individual benefit**, they must live past age 80 (their breakeven age) to reap the benefits of delaying Social Security. If they die before age 80, they would (in hindsight) have preferred collecting Social Security at an earlier age.

**This is a crucial qualifier that we will later have to amend.

But should we only consider their own individual benefits? No!

When one spouse passes away, the surviving spouse may be eligible to inherit the deceased spouse’s Social Security benefit, receiving the higher of the two benefits going forward.

In other words: there are essential scenarios where Mom will receive Dad’s larger Social Security benefit. Namely, if Dad dies first. In other words:

Mom’s smaller benefit will cease to exist upon the first spouse’s death. Always.
Dad’s larger benefit will continue to live until the second spouses’s death. Always.

There are (4) possible scenarios…

1 – Mom and Dad both die before age 80

2 – Mom dies before 80, Dad dies after 80

3 – Dad dies before 80, Mom dies after 80

4 – Both die after age 80.

In three of those four scenarios, at least one spouse lives beyond age 80. In 75% of scenarios, having Dad delay his Social Security until age 70 ended up being the right decision for the family.

Why SHOULDN’T You Pursue This Strategy?

Now, I’m assuming that all four of our “death scenarios” are equally likely; that the odds are 25% for each. Clearly, real life doesn’t work that way. Every individual will have a unique and hard-to-predict mortality.

That’s why I like to ask questions about health history, etc. If both Mom and Dad are relatively unhealthy, and both have long family histories of early death, then I could certainly see the rationale for both spouses collecting early.

Health and health history are the top reasons why a couple might NOT pursue this type of claiming strategy.

Also, perhaps there are more questions to ask about Social Security claiming in general. Kitces.com recently released a terrific thought piece on various factors and risks for Social Security, the conclusion of which is…

Why Delaying Social Security Benefits Isn’t Always The Best Decision

…is that most traditional Social Security research biases too far toward claiming Social Security at later ages, and not enough toward early ages. A few of the arguments in the article make a lot of sense to me. Though I do disagree with the main argument (comparing Social Security “returns” to that of a 60/40 portfolio).

Why else might a couple NOT pursue today’s strategy, where the lesser benefiting spouse collects early, and the greater benefiting spouse delays until 70?

Immediate cash flow needs. Some couples simply need the income now for living expenses. In those cases, the theoretical lifetime-maximizing strategy takes a backseat to financial reality.

Age gap between spouses. If the lower-earning spouse is much younger, the survivor benefit may not come into play for decades. In that scenario, maximizing the higher benefit is less urgent, and taking benefits earlier might make more sense.

Tax considerations. Social Security interacts with other income streams. This is important to consider.

Confidence in other retirement resources. If the couple already has substantial pensions, savings, or guaranteed income streams, the Social Security survivor benefit may not be as critical. They might prefer to collect earlier and enjoy the income while they’re younger and healthier.

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We’ll talk to you soon!

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This post was previously published on The Best Interest.

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