Optimizing Social Security Benefits: Strategies For Married Couples With Above Average Age Differences And With Ratios Of Primary Insurance Amounts Of 0.5 Or Better

Abstract

The complex rules and inter-related choices regarding spousal and survivor benefits imbedded in the social security system make the optimization of lifetime benefits for married couples a complex decision which can reduce or increase lifetime benefits significantly—even hundreds of thousand dollars. This paper focuses on strategies for couples with above average age differences and with ratios of Primary Insurance Amount (PIA) of 0.5 or better. In regards to age differences, about 40% of marriages have 4 or more years in age difference between spouses. The difference of four or more years is important because it means that one spouse is at or past full retirement age (FRA) when the other spouse becomes 62. Since both spouses must be eligible for regular social security benefits (past 62 years of age) to jointly execute an optimization strategy, the time period to execute strategies for couples is reduced by above average age differences. This paper evaluates the financial benefits of three major strategies for couples with above average age differences and with PIA ratios of 0.5 or more: (1) Use “Restricted application” for spousal benefits; (2) Delay start of benefits until one spouse has reached 70 years of age; and; (3) Early start for benefits as soon as the youngest spouse reaches 62 years of age. Each strategy is affected by the differences of age between the individual spouses, their individual work records (PIA ratio), and their individual life expectancies. The analytical framework presented in this paper illustrates that couples can increase life time benefits by hundreds of thousands of dollars by choosing the appropriate strategy.