Social Security Strategies for Married Couples

It can be challenging for retirees to determine the optimal time to claim Social Security. Add a second benefit for married couples, and deciding when to claim can get even more complicated. Financial advisors have an opportunity to help married couples take advantage of certain Social Security claiming strategies unique to their situation. In this month's FinPlan Friday conversation, Joe talks about Social Security claiming strategies for married couples.

Social Security Timing | claiming for couples FinPlan Friday | Sept 2021

FinPlan Fridays

In our video blog series, FinPlan Fridays, Covisum® Founder and President Joe Elsasser, CFP®, offers his take on the issues financial advisors see every day. Joe is a practicing financial planner with a unique perspective on the challenges Covisum provides technology solutions. Join us on the first Friday of every month for FinPlan Fridays and get helpful tips to grow your financial planning practice. 


Hi, this is Joe Elsasser, CFP®, President and Founder of Covisum, and I'm also a practicing financial advisor. Welcome to another FinPlan Friday. Today, our topic is Social Security for married couples. You may be thinking, "Why bother? The 'file and suspend,' for the most part, is long gone. The restricted application only applies to a tiny portion of the population and in the next couple of years will be gone entirely." Yet, it continues to be one of the most asked questions by people on the edge of retirement.

How do you answer the question, "When should we claim Social Security?"

Your clients' claiming decision will influence cash flow they get from Social Security, and it will also affect how they use other assets in retirement to support their overall retirement income goals. When they claim influences their tax picture—effectively how much tax they will pay over their lifetime. So, financial advisors can continue to add a good amount of value by evaluating all the Social Security claiming options—both in a vacuum and in the context of the client's overall financial plan.

[Social Security Claiming Strategies for Couples checklist]

Social Security Claiming Strategies

Both Delay—It might make sense for both household members to delay benefits, potentially until age 70. This strategy will get them the most significant Social Security benefit possible. It will also create an income gap from the time they stop working until those Social Security benefits are engaged.

When both people delay, you have ultimate flexibility from which assets you draw. In our practice here in Omaha, we find ourselves doing a lot of Roth conversions during that window, or gap in income, to level out the required minimum distributions and effectively create a lower lifetime tax bill.

This is a really common strategy, particularly when both household members can delay benefits until age 70. And of course, that only makes sense if you have two household members in good health and with good family history.

Split Strategy—In this case, you have the lower wage earner in the household claim benefits as soon as possible. That gets some cash flow headed into the household. It reduces the amount you'll have to draw from other assets, but it also allows the higher wage earner's benefit to grow as large as it can be by age 70. The split strategy preserves the higher wage earner's benefit during that individual's lifetime as well as during the couple's joint life.

At the first death, the smaller benefit will go away. This impact is made as small as possible by claiming early. The second benefit will continue. Many widows live a very long time in retirement after the first death, and maximizing the second benefit can be excellent protection against poverty and stress in old age.

Now, the other advantage is that you still have a lot of tax flexibility. At worst, 85% of that smaller Social Security benefit will be taxable as ordinary income. So, in most cases, advisors can still do Roth conversions or harvest from IRA money while delaying the larger wage-earner's benefit. The lower-wage earner is often a little bit younger and might still be working. This brings into question the earnings test.

The Earnings Test

The Social Security earnings test is a two-tier test, and there are a couple of different varieties of the test.

The first tier is for the years between age 62 and the calendar year the client turns full retirement age. That test is roughly $18,000. It moves every year. Then, for every dollar that the client exceeds the earnings test threshold, they lose 50 cents of a Social Security benefit. Many people think, "If I'm over that $18,000, I can't claim Social Security benefits." That's not true for a lower-wage earner. It often still makes sense to claim early, even if they're a bit over that earnings test threshold, because they may lose only a few of their benefit checks throughout the year.

So, for example, for round number's sake, if the earnings test threshold was $20,000, and the client was working and earning $30,000 a year, then the client is $10,000 over the earnings penalty or the earnings threshold, and $10,000 divided by two is the penalty amount. That's $5,000.

Now, let's say that their Social Security benefit then was $1,500. That means they would forfeit four checks during the year, only collecting eight instead of 12. When they reach full retirement age, their benefit will be adjusted to account for all the months they did not receive a check. Now they don't get a lump sum for those checks. Instead, their future benefit is increased by the amount they would have received if they had not elected during those months.

The earnings test is not a tax. It is a cash flow penalty. As such, it makes sense to evaluate those situations where someone may be over that initial earnings threshold, between age 62 and the calendar year they turn full retirement age, and still have them claim Social Security in order to get some benefit checks coming into the household.

I mentioned there are two different parts of this test. The second part is the calendar year that your clients turn full retirement age. And this one's exciting because it will often have that lower wage earner not waiting until full retirement age, even if they're working and making way too much.

When you turn full retirement age during the calendar year, the second threshold is considerably higher than the first threshold. Let's say your client reaches full retirement age in March. They could earn $40,000 in January and February ($20,000 each month) and still qualify to get their full benefits throughout the entire year because of how that threshold works in the calendar year they reach full retirement age.

Now, there are many nuances here. It might only be three months or six months, or nine months of extra checks. And yet, nine months at a couple of thousand dollars is most advisors' fees for a year, two years, or more. It will be easy for clients to see that you add more value to their retirement income strategy than it costs them to have you help create the plan.

Putting the time into developing a solid Social Security strategy can deliver significant value for clients, whether through the tax perspective, overall retirement income planning, or how you harvest other assets through retirement. 

Social Security Timing demo