When deciding how you and your spouse should approach Social Security retirement benefits, there are a lot of approaches to consider. Unfortunately, many of them can result in you getting significantly less than what's available to you.
"It's like a game of chess," says Mari Adam, a certified financial planner based in Boca Raton, Fla.
Each decision you make as a couple can impact the monthly Social Security benefits you receive for the rest of your lives. Consequently, even small missteps can shave thousands from the cumulative benefits you receive as a couple.
To prevent you and your partner from getting short-changed, consider these five tips for helping married couples maximize their Social Security benefits.
1. Understand the impact of timing
Whether you're single or married, deciding when to start your benefits is critical. But when a couple makes a bad timing decision together, the losses are compounded. This makes it especially important for couples to grasp the basics.
"If you start early, you get less on a monthly basis. If you wait longer, you get more on a monthly basis," says Kurt Czarnowski, who worked for Social Security Administration for 34 years and is now principal at Czarnowski Consulting, a retirement planning company.
You can choose to start collecting Social Security benefits early (starting at age 62), but your benefits will be permanently reduced from what you would have received if you waited until your full retirement age (age 66 for people born from 1943 to 1954). Claiming benefits at 62 means your monthly benefit is likely to be about 25 percent less than what you would have received at your full retirement age, Czarnowski says.
Conversely, if you wait past your full retirement age to collect your benefits, your future monthly payout will increase by up to 8 percent each year until you turn 70.
2. Wait at least until full retirement age to claim benefits
Simply waiting until full retirement age to claim benefits can have a significant impact on a couple's finances over the course of their lives, says Josh Koehnen, a certified financial planner in San Diego, Calif.
"Assuming health is good, married couples should hold off until at least full retirement age (66 or 67) before taking any benefits," Koehnen says. "Taking it before this time will result in a permanent reduction that could mean missing out on significant dollars, depending on how long they live. I recently ran an analysis for a client, which showed that if they both waited until full retirement age and ultimately lived until age 85, they would receive over $150,000 in additional benefits."
For healthy couples who would like to maximize their lifetime payout, Koehnen recommends delaying the collection of benefits -- with the exception of Social Security spouse's benefits, as you'll read below -- until age 70 if possible.
3. Delay Social Security benefits for the higher earner
If one spouse was the major breadwinner for the couple, that spouse may want to delay receiving monthly retirement benefits from Social Security longer than their partner. Doing so can help guarantee that the surviving spouse will collect as large a benefit as possible when the other dies.
"The spouse with the higher monthly benefit should postpone collecting Social Security as long as possible, but not beyond the age of 70," says Michelle Tucker, a certified financial planner at Tucker Wealth Management in Honolulu, Hawaii. "The object of postponing is to maximize your benefit and this higher benefit will be paid to you for life and continue for the life of your surviving spouse."
4. Consider a file-and-suspend approach ...
Using a file-and-suspend strategy is one way couples can reap an oft-overlooked perk: Social Security spouse's benefits.
For example, if both spouses are eligible for benefits and one opts to file and suspend while the other doesn’t file at all, it allows the nonfiling spouse to claim a spouse's benefit as both of them continue to let their regular benefits grow. If the couple intended to delay collecting anyway, this monthly spouse's benefit effectively equals free money.
"A client recently used this strategy where the husband decided to file and suspend his benefit at age 66 so that the wife could take a spousal benefit until they both begin taking their own benefits at age 70," Koehnen says. "She is now getting about $1,100 per month for the next four years, which will result in over $55,000 of additional funds."
5. ... or a file-and-restrict strategy
A strategy similar to file-and-suspend is called file-and-restrict. This approach also bring spouse's benefits into the mix, but unlike file-and-suspend, one of the spouses must be collecting his or her regular benefits in this scenario.
"If you are 66 and your spouse is collecting Social Security based on her earnings history, you can file and restrict your application and qualify for your spousal benefit based on her earnings history," Tucker says. "By doing this, you will collect a spousal benefit while you postpone collecting your own benefit, which continues to grow."
Then, when your regular benefit has grown to a level that satisfies you, you can withdraw your restriction and begin collecting that amplified benefit for the rest of your life.
(Correction: An earlier version of this story indicated that both partners in a marriage could file and suspend their benefits to allow one partner to collect spouse's benefits. But SSA indicates that only one partner should file and suspend to enable spouse's benefits for the other partner. The nonfiling partner can file for spouse's benefits once the other partner files and suspends, allowing both partner’s regular retirement benefits to continue growing until age 70.)