Importance of Timing As Social Security Strategy for Married Couples

Securing at least one steady source of income is an important — and often overlooked — component to retirement planning.

Even more important, however, is the diversification of income streams. You don't want your client's stream of income to slow to a trickle because it's not well diversified. Part of the advisor's role here is to help clients identify the best timing for their Social Security withdrawls. 

Social Security remains one of the most dependable streams of income, though there are several different scenarios that come into play when advising married couples. To remain successful, advisors must be knowledgeable about the Social Security benefit requirements as well as their clients’ retirement resources.

Four of the most common Social Security strategies for married couples and individuals involve maximizing benefits by:

• Working for a longer period of time (this can be full-time or part-time)

• Downsizing wherever possible

• Finding ways to spend less money in general

• Deferring Social Security benefits

While all four strategies can increase the optimization of a client’s retirement resources, two require a client to spend less and one calls for increased time in the workforce. But the clear winner is Social Security deferment, as it actually increases the benefit amount your clients receive. The longer an eligible individual waits before claiming, the higher the monthly benefit.

If Social Security is part of a married couple's planned retirement income stream, there are a few details to note.

Eligibility and the Replacement Rate

As it was founded, the Old-age, Survivors and Disability Insurance program (OASDI) — commonly referred to as Social Security benefits — provided a basic level of monthly income to workers and their families. When an individual reaches full retirement age, they have the option of receiving Social Security benefits or deferring their benefits and continuing to work. The benefit amount received by an individual is intended to replace a percentage of their wage-indexed income and can be estimated using the Social Security Administration’s Quick Calculator.

Benefits can be paid to retirees as early as age 62 but if they choose to wait until age 70 to receive benefits, payments can increase by as much as 8 percent per year.

Generally speaking, the replacement rate increase correlates with the length of deferment. Consider the replacement rate example of a couple who both earn $60,000 per year, that decide to defer their benefits while continuing to work full time:

• At age 62, Social Security replaces 23 percent of their pre-retirement earnings

• At age 66, Social Security replaces 32 percent of their pre-retirement earnings

• At age 70, Social Security replaces 45 percent of their pre-retirement earnings

Maximize Social Security with Timing

The timing of retiree benefits is one of — if not the — most important strategy to consider. Just as location is key in the real estate industry, timing is key for married couples wishing to use Social Security as a retirement income source. This is important regardless if one individual or both individuals are eligible.

When Couples Have Divorced

If a couple has been married for 10 years or more and divorces, the Social Security spousal benefits strategy may be employed in the same way as above. For divorced clients who will receive the lesser amount, they should begin to claim as soon as full retirement age has been reached. Then, once they have reached age 70, switching to the maximum worker’s benefit (i.e. that of the client’s former spouse) will increase their monthly and overall income.

Special Timing Considerations Regarding Widows and Widowers

Life expectancy should absolutely be taken into consideration when advising married couples. In the event that one individual dies, the surviving spouse will receive the higher of the couple’s two Social Security retirement benefits. But if these benefits were claimed early, the surviving spouse will end up with the lower benefit for the rest of their lifetime.

While Social Security remains a reliable source of annuitized retirement income, advisors must have a comprehensive understanding of total client resources before choosing which timing strategy to suggest.

According to the U.S. Centers for Disease Control and Prevention, the average life expectancy in America is 78.8 years. Put another way, people are living longer than ever. This makes it even more important to understand your client’s resources because advice you give now impact their financial plan for many more years and maybe even decades.

An advanced financial planning designation like the Retirement Income Certified Planner® (RICP®) empowers advisors with the expertise and confidence needed to best serve married couples, divorcees, and surviving spouses in complicated matters like retirement income planning, estate plans, trusts, and more.

As an RICP® you’ll be able to answer complex retirement income planning questions confidently and with expertise. Learn how the role of Social Security impacts financial planning for retirement at every stage by downloading Social Security's Role in the Advice You Provide.