140605_AskExpert_illo
Robert A. Di Ieso, Jr.

How to Max Out Social Security Spousal Benefits

Dec 30, 2014

Q: My spouse and I are both 61½, retired in mid-2013, and have earned almost equal income for over 40 years. We can afford to wait to claim -- but for how long, I don't know. We would, of course, like to travel and have enough money to enjoy life while we are still "young," since you never know what the future brings. That's the gamble, isn't it? I did call the Social Security Administration several months ago and a very nice woman gave me this advice: We should both file and suspend at 66, collect each other's spousal benefits, and then collect our full amount at 70. Then when one of us dies, the other one will still have a maximum payment. Do you agree with that? Patti

A: I don't agree with that advice, Patti. Let me explain why.

Social Security benefits are 76% higher if delayed to age 70 than if begun at age 62, but delaying benefits can seem like a gamble. As you noted, one never knows what surprises life will bring, or when, so many opt to take the money while they can best enjoy it.

But there’s a reason Social Security is called Old-Age, Survivors, and Disablity Insurance. And among all the changes in the years since Social Security was created in 1935, none has been more important for retirements than the tremendous longevity gains that people have experienced. Old age lasts much longer than it used to, and so should your money.

Many people look at the decision about when to claim benefits as a break-even analysis. How long must I survive to make waiting for higher benefits a winning proposition? We are wired to look at money this way. But if you can, think instead about Social Security as insurance for a very long life. Deferring benefits until they are at their greatest possible level makes a lot of sense when viewed this way.

As for Patti, the woman she spoke with at Social Security may have been very nice, but she did not provide very nice advice. It is possible for one spouse to collect spousal benefits while their own retirement benefit is deferred and rises in value. But two spouses cannot both do this.

The classic approach is for both Patti and her husband to wait to claim until they have both reached 66, which is their full retirement age under Social Security rules. At this time, the one with the larger retirement benefit would file and suspend his or her own retirement benefit, enabling the other spouse to file a claim for spousal benefits and receive half of the first spouse's benefit. Then, at age 70, both would switch to their own retirement benefit.

This approach, as Patti noted, will not bring in any Social Security benefits for several years. If Patti and her husband need some retirement money sooner, an alternative approach is for one of them to file for retirement benefits now. The other spouse would do nothing.

Then, at age 66, the spouse who had filed at 62 would suspend benefits, allowing them to grow by 8% a year until age 70. The spouse who had done nothing could then claim a spousal benefit at age 66 and, at age 70, switch over to his or her own retirement benefit.

There are numerous other versions of this “start-stop-start” strategy that can optimize claiming choices for spouses between the ages of 62 and 70. This Maximize My Social Security software can run all the various scenarios for your situation and recommend the best option. (The company that makes it is run by Larry Kotlikoff, co-author of my book, but I don't stand to benefit by recommending it.) The service costs $40 a year; given the stakes, I believe the price is well worth it.

Philip Moeller is an expert on retirement, aging, and health. His book, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” will be published in February by Simon & Schuster. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Do you have a personal finance question for our experts? Write to AskTheExpert@moneymail.com

Read next: How Your Earnings Record Affects Your Social Security

Listen to the most important stories of the day.

MONEY may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.

Quotes delayed at least 15 minutes. Market data provided by Interactive Data. ETF and Mutual Fund data provided by Morningstar, Inc. Dow Jones Terms & Conditions: http://www.djindexes.com/mdsidx/html/tandc/indexestandcs.html. S&P Index data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Terms & Conditions. Powered and implemented by Interactive Data Managed Solutions