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Social Security for Two

Like other pension decisions married couples face, Social Security poses considerations of joint life expectancy that are often overlooked in deciding when each spouse should file to begin receiving benefits.

January 2009
by Francis Thomas/Journal of Accountancy

CPA financial planners are often confronted with the question, "When should I start collecting Social Security benefits?" For married couples, the question should be asked in the plural.

Current financial needs and expected life span may be paramount considerations for a single person. However, the implications of when to begin receiving benefits (and on which spouse’s work record) for spousal and survivor’s benefits not only introduce key points for every married couple to ponder but also create additional strategic opportunities for financial security in their golden years together.

Many couples don’t seem to be approaching the question in the most prudent way. It has been noted, for example, that many married individuals who earned higher wages than their spouses begin claiming Social Security benefits at age 62 or 63, prior to full retirement age (FRA). The Senior Citizens’ Freedom to Work Act of 2000 has made it more advantageous than under prior law for married individuals who earn more than their spouses to postpone claiming benefits. A significant provision of the Act is "file and suspend," which permits spouses to collect spousal benefits when the primary worker is postponing the collection of benefits. Married retirees are often unfamiliar with this provision, and the strategy is underutilized by financial planners.

Furthermore, higher-income spouses often claim Social Security at an age that significantly decreases the couple’s combined benefits, as well as their spouse’s prospective survivor benefits. A 2007 study, Why Do Married Men Claim Social Security Benefits So Early? Ignorance or Caddishness? by Steven A. Sass, Wei Sun and Anthony Webb for the Center for Retirement Research at Boston College, concluded the reason was a lack of financial awareness. By educating clients about the full range of Social Security benefits considerations, including marital ones, financial planners can help them make the wisest use of this valuable retirement resource.

This article has been excerpted from the Journal of Accountancy.
Read the full article here.