Separate, but together

by Dave Kutcher

We get the age-old question all the time about when folks should begin their social security benefits. Do we wait until full retirement age, start as early as possible or even wait past when our full retirement age would otherwise begin?

Today we want to touch on the idea of how your decision may impact others, particularly your spouse, if you have one. When a married couple is considering their options in this regard, this question needs to consider the impact one spouse’s decision has on the other.

It is still prevalent that the households we deal with will have one spouse that has been the primary income earner (breadwinner) and the social security benefits available for that spouse are significantly higher than the non-breadwinner spouse.

Decisions made today by that breadwinner regarding when they will claim their social security benefits has a substantive and consequential result for the spouse that should not be ignored. Yes, you might each have your own separate social security benefits, but you need to make this decision together. As a side note here, this is why you need to try and establish other resources for retirement other than just social security. When you have multiple sources of retirement income, you will have much more latitude in making good decisions about your social security benefits.

There are two big components of social security benefits that need to be considered here: spousal benefits and survivor benefits. Let’s start with who as a spouse would be concerned with this topic. If your own social security benefits are less than half of your spouse’s benefit, you are considered a dependent spouse and are eligible for a higher benefit than if you were on your own.

The first calculation to make is the benefit amount available to the breadwinner spouse. Next, we look at the amount available to the non-breadwinner spouse. If that benefit payment is less than half of the higher earner’s benefit, the spousal benefit is supplemented to equal one half of the higher amount.

So, as an example, if the breadwinner’s benefit is calculated to be $3,000 per month and the non-breadwinner’s is $1,000 per month at full retirement age, the spousal benefit will increase by $500 per month to reach $1,500, or ½ of the breadwinner’s benefit.

Please keep in mind any benefit payments before or after full retirement age for either spouse will have a negative or positive impact on these amounts respectively. The maximum monthly payment from social security for a spouse claiming benefits prior to their own full retirement age could cost that spouse up to 35% of their income. That is a significant loss of future income no matter what your total benefits are.

The decision made about the breadwinner’s benefit will have a very big impact on the future benefits available to the household. Delaying benefits for this breadwinner will provide substantive and meaningful increased income for the non-breadwinner in the years ahead. Here is the where we find the elephant in the room … you must have other resources in order to delay social security benefits in an effort to maximize your household’s overall social security income to both spouses.

Let’s not forget that longevity pays a key role here … people are living longer and longer than was likely ever contemplated when the social security system was created. So, decisions made at the front end of retirement will have an impact for a much longer period than it ever was in years gone by. These decisions as to when to begin will likely impact your household for 30-40 years. And, when you consider cost of living adjustments (COLA) on these benefit payments, a lower starting income means that much less will be provided in future COLA income too.

So, that touches on the impact of spousal benefits while both spouses are alive, but as we know it is likely that both spouses’ will not meet their ultimate demise at the same time and so we also need to consider what happens when a spouse dies during retirement.

In the situation where we have a breadwinner receiving a benefit twice the amount of the non-breadwinner spouse, as we just described, when one of the spouse’s dies, the survivor will receive only the higher of the two benefit payments. So, a non-breadwinner spouse will receive the breadwinner’s benefit, but will simultaneously lose the lower benefit that had been also coming into the household while both were alive, and that loss of income will continue for the remainder of the survivor’s life. So, here again, the higher we can get the breadwinner’s benefit to begin with, the better off the surviving spouse will be for what may be years and years ahead.

Whether that survivor can meet their household needs on one monthly check, albeit the higher of the two checks, will likely depend on whether there were other retirement plan resources still available to fill gaps in the household budget. When we add the consideration of future heath care costs and potential long term care needs, the future income needs for the surviving spouse become even more important to evaluate as part of that decision at the front end of retirement.

Remember, you may each have your own separate social security benefits available, but decisions as to when to start receiving benefits is one that should be made with both spouse’s future needs considered together.

My name is David A. Kutcher, a retired Marine Corp Captain. My business partner in the lower 48 is Richard C. Scott, CLU, LUTCF. For nearly 40 years we have been helping folks with their personal retirement decisions. We encourage you to make an appointment and get ahead of your concerns as early as is possible. You can catch us on the radio every Saturday morning, “Retirement in the Last Frontier”, 8:30-9:30 on AM 650, Keni Radio and on Tuesday mornings, KFQD News Talk Radio AM 750 and FM 103.7. Frontier Retirement, 10928 Eagle River Road; Eagle River, AK 99577, (907) 795-7452.