How married couples can max out their Social Security

What's a simple strategy for married couples looking to optimize their Social Security benefits? Ever since Congress changed the rules in late 2015 that apply to married couples, many people have been asking for a simple rule of thumb. So here it is:

Find an online Social Security calculator or qualified retirement advisor who can help you figure the best strategy. The fact is, no one easy rule applies in all situations.

However, popular Social Security calculators can make some general conclusions that apply in many situations. For example, Financial Engines, the large retirement advisory firm, recently updated its free, online Social Security calculator to accommodate the new rules. It's easy to use: Answer a few questions about yourself and your spouse, and it offers recommendations for optimizing your benefits.

The yardstick it uses to determine an optimal strategy is to maximize the expected payout from Social Security to you over your lifetime and the expected lifetime payout to your surviving spouse. It bases its recommendations on estimates of the Social Security benefit you and your spouse have earned by working, as well as your input on whether you and your spouse expect to live to average life expectancies, or shorter or longer than the averages.

You can gain general insights into optimal strategies by running different situations through the Financial Engines calculator, such as one in which the husband is older than his wife, both partners are the same age or the wife is older than her husband. In each of these situations, you can input different combinations of poor, average and good health for each partner, as well as different levels of wages earned over the years.

Let's see how these combinations can give you some general insights.

Generally, the primary breadwinner should delay benefits

When one partner has been the primary breadwinner, it usually makes the most sense for that person to delay starting Social Security income, often to age 70 if possible. This conclusion holds true whether the breadwinner is the husband or the wife, and in most situations regarding the expected health status of either partner.

This conclusion is particularly appropriate for a common situation: The husband is a few years older than the wife and has been the primary breadwinner. The only time this combination resulted in a recommendation that the husband starts his earned benefit before age 70 was when both partners expected to live much shorter-than-average life expectancies -- to age 78 for women and age 76 for men. Even then, the program recommended that the husband start at age 68.

Delaying is often a beneficial strategy for two reasons:

  1. Social Security increases your benefit for each month between age 62 and 70 that you delay the start of your earned benefit. Social Security calls this increase "delayed retirement credits." These credits are more generous than factors that would be based on pure actuarial principles. The reason is that Congress hasn't changed the delayed retirement credits for many years, and it doesn't yet recognize recent improvements in life expectancies and today's low interest rates.
  2. When the primary breadwinner dies, the surviving spouse usually receives a monthly income equaling the income the breadwinner was receiving during his or her lifetime, reflecting the delayed retirement credits. If you want to maximize the income your spouse will receive after you pass away, delaying the start of your benefits is a good strategy.

Consider the health status of the nonprimary breadwinner

Even though it's often the case that the primary breadwinner should delay the start of benefits as long as possible, even if that spouse is in poor health, the optimal strategy for deciding when the other spouse should start their earned benefit often depends on his or her health status. Spouses in poor health may want to start their benefits early, whereas spouses in good health may want to delay their benefit.

Note that this conclusion applies only to Social Security benefits the spouse has earned by working. Under the new rules, in most cases, the Social Security benefit for a nonworking spouse can't be started until the working spouse starts his or her earned benefit.

If you attained age 62 in 2015 or before, you're in luck

If you attained age 62 in 2015 or before and haven't yet started your Social Security income, you might benefit from the grandfathering rules regarding restricted application that were included in the recent law changes.

Here's how this can work in the common situation cited above in which the husband is older than his wife and is also the primary breadwinner.

Suppose both the husband and wife have worked for most of their lives, and each has earned a significant Social Security income on their own earnings record. When the wife attains age 66 (her full retirement age), she starts her earned benefit. At that time, the husband can file a restricted application to start just his spousal benefit based on the wife's benefit, while delaying the start of his earned benefit to age 70 to receive the delayed retirement credits.

Note that this only works if the husband has attained age 66. In certain circumstances, this strategy can also work in reverse, where the husband starts his earned benefit at age 66 and the wife files for restricted application while delaying her earned benefit.

Does it ever pay for both partners to start collecting as soon as possible?

For the various combinations tested with the Financial Engines calculator, there were no circumstances where it was optimal for both partners to start their Social Security benefits as soon as possible -- at age 62. Yet that's the age at which many people do start collecting. It may be possible that circumstances exist when both partners starting to claim benefits at age 62 is the optimal strategy, but it's likely quite rare.

Note that delaying Social Security benefits is often the optimal financial strategy and usually requires you to live on other resources or work while you're delaying Social Security. Unfortunately, many people don't have substantial savings and can't or won't work. In such situations, they might have no choice but to start Social Security benefits early, even if that's not the optimal financial strategy.

Financial Engines estimates that married couples face more than 8,000 possible combinations of Social Security claiming strategies. The best way to determine the best strategy for you, given your unique circumstances, is to let a computer work through all the possible combinations.