Social Security Decisions: How a New Tool Can Save You $150,000

Last Updated Oct 11, 2011 12:13 PM EDT

My previous post described new software that helps individuals and financial planners analyze the best strategy for claiming Social Security benefits. To see how well it performed, I took the software for a spin.

I focused on married couples, because they need more complicated strategies for getting the most out of Social Security benefits. The strategies for singles are more straightforward.

First I'll explain a few features about Social Security benefits:

  • Social Security benefits are set up so that each spouse receives his or her own Social Security income check; the household income is the sum of both spouse's incomes.
  • Your Social Security income will be the greater of the benefit that is (a) based on your own wage history (called the "worker's benefit") or (b) an income that's based on 50 percent of the benefit generated by your spouse's wage history (called the "spouse's benefit").
  • Spouses are not required to start benefits at the same time. In fact, there are situations where the best strategy is to start receiving benefits at different times, and in some circumstances, you can't start benefits at the same time.
  • The worker's benefit receives delayed retirement credits for every month you postpone starting benefits until age 70. Once you attain age 70, delayed retirement credits no longer apply.
  • The spouse's benefit increases for every year and month your spouse postpones starting benefits until your spouse attains his or her Full Retirement Age, which is currently age 66.
For more background on the rules regarding Social Security, read my posts What You Need to Know About Social Security and How to Take Spousal Benefits.

There are two special strategies that affect Social Security benefits for married couples:

  • "Restricted application" is available once you reach your Full Retirement Age. Under this strategy, you can restrict your application to start just the spouse's benefit, which allows the worker's benefit -- that is, the benefit based on your own earnings history -- to earn delayed retirement credits.
  • A "file and suspend" action is also available once you reach your Full Retirement Age. The spouse's benefit cannot be started until the primary wage earner has filed for his or her own benefits, but the worker can file for benefits and then immediately suspend those benefits. This allows the primary worker's benefit to earn delayed retirement credits while the spouse immediately begins drawing the spouse's benefit.
The optimal strategy for deciding when each spouse should start Social Security benefits -- and whether any of the special strategies above would be beneficial -- depends on the following factors:
  • The age of each spouse and, more important, the difference in age between the two
  • The expected longevity of each spouse
  • Whether one or both spouses worked a full career outside the home and the relative earnings of each spouse
See the next page for the results of my test drive of the software at

Next page: How Much Is at Stake?

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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.