Social Security planning is important for any wealth management client in or near retirement. But for married couples, the decision-making process around such plans can be complicated by a number of factors.

These factors can include the income earned by each spouse, the couple’s total retirement savings, and the age difference between spouses, among other variables. Early planning is key to maximizing your clients’ benefits and helping them optimize their retirement saving strategies across their accounts. 

For married couples, the right approach to Social Security planning isn’t always obvious or intuitive, and the best long-term decision may actually run counter to what your clients assume is the best method. 

This is why financial advisors should take the lead in starting in-depth planning conversations that make sure all variables are properly accounted for.

1. When should I start taking Social Security benefits?

The decision to start claiming Social Security benefits is complicated, and it will have significant long-term implications for your clients’ income in retirement.

Calculations must account for the age of both spouses at retirement, the income being used to claim their Social Security benefits, and their retirement investments. Even when clients have a preferred strategy for claiming their benefits, it’s important that they understand different scenarios in which that claiming strategy may change. 

Here are some things to keep in mind:

The ideal claiming strategy will depend on whether spouses are claiming separate incomes or only the income of the higher-earning spouse.

In the past, most households had a straightforward answer when it came to choosing between claiming a single income and claiming separate incomes. And if your clients’ household has had a single earner account for the majority of the income throughout their working years, this might still be the case.

In this scenario, the spouse of the higher earner can claim spousal benefits that equal 50 percent of what the higher-earning spouse is eligible for. But as more and more households feature two spouses who work full-time for the majority of their working years, this claiming strategy is subject to greater scrutiny: In many cases, the lower-earning spouse may be entitled to a greater Social Security benefit if they claim their own income rather than that of their spouse.

The calculation is relatively straightforward: If the lower-earning spouse is eligible for a larger benefit on their own than if they were to claim spousal benefits, they should claim their own income. Otherwise, it makes sense to claim spousal benefits and maximize your household’s total Social Security income in retirement.

Advisors should remind clients that there are more complicated variables to consider. For example, they can’t claim spousal benefits until the higher earner reaches retirement age and starts collecting Social Security. It’s best to sit down with clients and explain the implications of these calculations based on their retirement goals.

Timing often depends on your ability to support yourself through other sources of income.

Ideally, Social Security will be just one component of your clients’ retirement income plans. Additionally, many clients will be interested in retiring from their full-time jobs before they are ready to claim Social Security benefits.

A strong retirement plan will utilize multiple sources of retirement income, including Social Security and also 401(k) plans, traditional IRAs, pensions, and/or other sources of income. 

The management of these accounts is important when your clients are deciding when to claim Social Security benefits. Not only do these accounts need to offer income that bridges the gap between retirement and the claiming of your clients’ Social Security benefits, but the tax implications of these income sources must also be considered to plan out withdrawals that avoid unnecessary taxation on your clients’ Social Security benefits and minimize their overall tax obligations over time.

For spouses with separate incomes, a “split strategy” may offer the best overall value.

In some cases, spouses can leverage the flexibility of Social Security benefits through what’s known as a “split strategy.” This tactic can be beneficial in cases where spouses plan to claim their income separately and need to claim their Social Security benefits before they fully mature.

Claiming benefits on both incomes as early as age 62 can leave the couple with little long-term income. But the split strategy involves the lower-earning spouse claiming their benefits at 62 while the higher-earning spouse holds off until 70—allowing their monthly benefit to grow over time. 

This strategy provides some Social Security income in the short term while still allowing one benefit to be maximized, offering greater long-term security. This strategy may be of interest to clients struggling to balance their need for retirement income and their preference to delay claiming their benefits.

As you plan out the timing, keep in mind that when in doubt, delaying is often the right choice. You can always change your mind and start claiming benefits later, but once you start claiming, you’re locked into that strategy, and the total monetary benefit you receive.

2. How should married couples manage their Social Security benefits?

Every married couple usually wants to manage their Social Security benefits in a way that maximizes their own financial stability. In general, though, here are some recommendations that typically  generate the most value from these benefits:

  • Delay claiming your benefits as long as possible if you’re able to support yourself through other income. Even if your clients can’t wait until 70 years of age, incremental progress toward this goal will increase the value of their benefits once they’re claimed.
  • Use a split strategy or have both spouses claim one income to maximize the monetary benefit amount. Again, advisors should run the numbers to make sure separate benefit claims make sense. 
  • Plan out any retirement account withdrawals that will be taken out alongside Social Security benefits to minimize your tax obligations. Combining a Roth IRA withdrawal with Social Security benefits, for example, can carry a smaller tax burden than when Social Security and traditional IRA withdrawals are stacked on top of one another.
  • Use tax planning strategies to avoid paying taxes on Social Security—especially when it comes time to take required minimum distributions (RMDs). RMDs can be ticking time bombs if advisors don’t help their clients plan in advance to allocate these withdrawals in a way that minimizes the marginal tax rate paid over time.
  • Consider suspending Social Security benefits in cases where doing so can increase your long-term benefit amount. If your clients claim benefits early and then decide they don’t need immediate access to their benefits—due to an unexpected windfall, a new source of income, or a change in their living costs—they can still increase their benefits by 8 percent for each year those benefits are suspended. Your clients can do this for up to four years, for a total benefit increase of 32 percent.

3. What do I need to know about survivors' benefits?

As your clients plan out when to retire and start claiming their Social Security benefits, they should also be mindful of their status in accruing credits that could be used to calculate a Social Security survivors benefit in the event of one spouse’s death.

Widows or widowers who have reached 60 years of age, or age 50 if they’re disabled, are eligible for survivors benefits as long as they were married for at least 9 months. These benefits are also available to individuals who meet certain conditions, such as caretakers for a child who is under 16 years of age or disabled, and parents who were financially dependent on a deceased child. These benefits are dispensed at a percentage of the deceased individual’s Social Security benefits, which could be as high as the full amount the individual would have received in life.

Clients should understand the implications of these survivors' benefits when planning out their Social Security claiming strategy. Advisors can outline the different implications based on hypothetical scenarios. For example, a split strategy can increase potential survivors' benefits by allowing the older individual’s benefit amount to grow over time while they claim the benefit of the younger spouse.

Advisors should emphasize that survivors benefits can be complicated to calculate and to apply for. Your job is to help your clients understand the implications of Social Security planning on potential survivors' benefits and make sure they’re aware of any benefits they’re owed.

Don’t take risks with your Social Security planning.

Social Security planning can be more complicated than it first appears, and small oversights in this planning process can have costly consequences for your clients.

Consider using software to streamline the complexities of Social Security claiming, view all options, and optimize your clients’ strategies.

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