Should a Married Couple Start Social Security Early and Invest the Income?

Last Updated Jul 12, 2011 6:51 PM EDT

Is it a good idea to start Social Security benefits at age 62, even if you don't need the money to meet your living expenses, and then invest this income? Recently, I analyzed this issue for the case of a single retiree, and the answer is: Not unless you feel lucky. In this case, being lucky means you either have to die young or realize excellent returns on your invested assets.

But is the answer for a married couple the same? While the situation is more complex, the answer is generally the same, although there are a few exceptions. Let's take a look at a common situation, where the husband is a few years older than his wife and has been the primary breadwinner. We'll need to address the husband and wife's Social Security benefits separately in order to thoroughly examine the situation. (You may want to review my previous post for background.)


First, let's consider the Social Security income that's based on the husband's earnings record.


Why It Doesn't Make Sense to Start the Husband's Benefit Early and Invest
In my prior post, I showed that "start early and invest" was a smart move only if a single retiree died before a "breakeven" age. This age depended on the rate of return the retiree (I called him Joe) achieved for the invested Social Security benefits, as summarized below:


If this retiree is married, however, then this situation only works if both the husband and wife pass away before the husband reaches the breakeven age. The reason: Upon the husband's death, the wife's Social Security income bumps up to the benefit the husband was receiving. If he had started early and invested, and if she's still alive when the husband reaches the breakeven age shown above, she'd bump up to his reduced Social Security benefit upon his eventual death. But if he had waited until age 70 to start receiving his Social Security benefits, she'd bump up to the increased benefit upon his death.

So it doesn't make sense to start the husband's benefit early and invest, since you need to take risks in the stock market or with interest rates to earn the kinds of returns shown above. However, the husband's "return" for waiting to start Social Security until age 70 is risk-free.

Now let's consider the spouse's Social Security income.


Why It Might Make Sense to Start the Spouse's Benefit Early and Invest
The answer here depends on the type of Social Security income the wife is receiving.

If she receives a Social Security benefit based on her own earnings record, then her decision must be based on the table shown above, except that she would use the wife's age in the above table. Then the situation would go one of two ways:
  • "Start early and invest" makes sense if either the husband or the wife dies before the wife reaches the breakeven ages shown in the table above. The reason: If the husband dies first, the wife will bump up to his income upon his death, and there will still be some money remaining in her invested Social Security benefits. If she dies first, there's also some invested Social Security benefits remaining.
  • "Start early and invest" doesn't make sense if both the husband and the wife are alive when the wife reaches the breakeven ages shown in the table above. In this case, the invested Social Security benefits from starting the wife's benefits early are exhausted, and all that's left is the spouse's reduced monthly Social Security benefits.
Note that if the husband is several years older than his wife, there could be a good chance he'll die before his wife reaches the breakeven ages shown in the above table.

It's a different story if the wife receives the spouse's benefit that's based on 50 percent of her husband's Social Security income. In this case, there's no increase for starting her benefit after her Full Retirement Age, which is age 66 for people retiring now. So it makes no sense to delay starting her benefit after age 66. I've run the same type of breakeven analysis in this case, comparing the spouse's benefit starting at age 62 vs. age 66. The chart I come up with ends up being very close to the chart above, using the wife's age as described immediately above.

So there are some circumstances where it might make sense to start the spouse's benefit early and invest. If you just can't resist getting your hands on some Social Security income, a compromise might be to consider starting the spouse's Social Security early, but delay starting the Social Security income of the primary breadwinner.

While there are a lot of details to consider, it's well worth putting in your time to figure how to maximize your Social Security payout. You'll thank yourself when you're drawing the maximum benefit in your 80s and 90s!

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.

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