When Life Partners Should Marry to Benefit from Social Security

By Larry Kotlikoff

Marriage may increase your Social Security benefits. Photo courtesy of flickr user terrellcwoods.

Larry Kotlikoff’s Social Security original 34 “secrets”, his additional secrets, his Social Security “mistakes” and his Social Security gotchas have prompted so many of you to write in that we now feature “Ask Larry” every Monday. We are determined to continue it until the queries stop or we run through the particular problems of all 78 million Baby Boomers, whichever comes first. Kotlikoff’s state-of-the-art retirement software is available here, for free, in its “basic” version

Jo Anne De Varges — Racine, Wisc.: Like many boomers, my “life” partner and I chose not to get married, preferring to keep our finances separate. Twenty years in, at ages 61 and 60, we are wondering if we should reconsider tying the knot due to Social Security benefits. Both of us have worked continuously since an early age.

Larry Kotlikoff: If you get married, after one year, you will both qualify for spousal and survivor benefits on each other’s work records. The trick to actually receiving these extra benefits is not to take them at the same time as your retirement benefit.

I described the three general rules for maximizing your lifetime Social Security benefits in this column. In your case, after reaching full retirement age, one of you can file for your retirement benefit and suspend its collection. This will permit the other one of you, after reaching full retirement age, to apply just for your spousal benefit.

Under this plan, both of you would collect your retirement benefits at age 70. The spousal benefit here would equal one half of the full retirement benefit of the spouse that files and suspends. If one of you has been a higher earner, then the spousal benefit could come to about $15,000 per year.

There are other variants on this strategy that might be better, such as having the higher earner, if he or she is younger, take his or her retirement benefit a year before full retirement age to permit the older spouse to start collecting a full spousal benefit upon reaching full retirement age. Under this variant, the younger spouse would suspend his or her retirement benefit collection upon reaching full retirement age and restart it at 70.

The bottom line is, yes, Social Security pays people like you to get married. Other people it pays to get divorced. Also, the federal income tax may treat you better as a married couple than if you were single. You can get a pretty quick sense of this running my company’s free financial planning program. Run yourself as single. Look at your taxes and living standard. Then delete the data on the first screen and run yourself as married.

If you are still working, you may also save on health insurance by putting one of you on the other’s policy.

Laura — Elgin, Texas: I am 63 and am currently working a well-paid job. I am self-employed so I pay my own income, Medicare and Social Security taxes each year. I plan on working as long as I can because I have no retirement fund. At what time would it be optimum for me to apply for retirement benefits? My full retirement age is 67 years and two months.

Larry Kotlikoff: Good news, Laura. Your full employment age is 66, not 67 and two months. You must have read a table too quickly. If you were never married, or were divorced before making it through 10 years of marriage and didn’t remarry, or are a widow who didn’t remarry before age 60, or if you are not now married, your best option will likely be to wait until age 70 to collect your highest possible retirement benefit. If the “ifs” don’t apply, then it’s more complicated and you need to decide how to time taking your retirement and divorcée benefits or your retirement and survivor benefits or your retirement and spousal benefits.

Jeff — Stoughton, Mass.: I retired at age 62 and started collecting Social Security at that time. My wife and I divorced after 11 years of marriage. My wife has earned a higher salary than I. She will soon be 66 and then will start collecting Social Security. Can I file to get more Social Security when she retires based on her income being higher than mine?

Larry Kotlikoff: Sorry about the divorce. Since your ex-wife is over 62, you can try to collect a spousal benefit based on her earnings record. You have to wait two years after you get divorced unless your ex has filed for her own retirement benefit. But it will be an excess spousal benefit because the minute anyone applies for his or her retirement benefit, even if he or she suspends it, that person is thrown into excess spousal benefit territory, which affects how the spousal benefit is calculated. Your excess spousal benefit is half of your ex’s full retirement benefit less 100 percent of your full retirement benefit. Even if she made a lot more, this difference may be negative, in which case it will be set to zero! And even if it’s positive, if you are under full retirement age, it will be reduced if you begin taking it early.

The best thing for you to consider if you are below age 70 is to suspend your retirement benefit until age 70 once you reach full retirement age. You’ll get the excess spousal benefit if it’s positive, while your own retirement benefit will grow thanks to the application of the delayed retirement credit, which is operational between full retirement age and 70. Delayed retirement credits reward those who delay or suspend collecting their retirement benefits during those years with an 8 percent higher starting real (inflation-adjusted) benefit when they do begin to collect before or at age 70.

If your excess spousal benefit is positive, it will, due to a little known fact, decline every year up to age 70. The reason is that after full retirement age, the excess spousal benefit is actually calculated as half your ex’s full retirement benefit less 100 percent of your full retirement benefit, augmented by any delayed retirement credits you have accumulated, even in the case you aren’t collecting a retirement benefit because you’ve suspend its collection.

Nasty piece of business this Social Security system. But Paul says this is all just the cost of having a democracy. It’s supposed to be messy. I say, we can have a democracy and a decipherable pension system at the same time. But maybe I’m just naive.

Bernard L. — Houston, Texas: I’m 62 this October and receive Social Security disability benefits. My wife worked and has passed. I want to know if I can receive benefits from my wife’s Social Security working history? What do I need to do to find out if I’m eligible?

Larry Kotlikoff: Sorry to hear about your loss. You can collect disabled widower’s benefits starting immediately if your late wife’s primary insurance amount (PIA) is higher than your disability benefit and if you became disabled within seven years of her death. One can receive a survivor benefit starting at age 60.

Since you are collecting a disability benefit, you are in excess survivor benefit territory. (This would also be true if you were you not disabled and were you collecting a retirement benefit.) Your survivor benefit will be calculated as an excess survivor benefit: the difference between your survivor benefit less your disability benefit. This difference could be negative, in which case your survivor benefit will be zero. If it’s not negative, it will be reduced the earlier you take it before reaching full retirement age. (Note, full retirement age for purposes of calculating survivor benefits can differ by up to four months from full retirement age for purposes of calculating retirement and spousal benefits).

But, there is a silver cloud in this answer. When you reach full retirement age, you can formally withdraw (I wrote withdraw, not suspend) your full retirement benefit and apply just for your survivor benefit. It will then equal your full survivor benefit, which will surely be positive. Just make sure to pay your Medicare Part B premiums out of pocket. When you reach age 70, apply for your retirement benefit, which will equal 132 percent of the disability benefit you are now receiving thanks to the application of the delayed retirement credit.

At this point, you’ll be thrown back into excess survivor benefit world, which means your survivor benefit may be zero. But your check won’t go down and will likely go up by a pretty penny if you were the higher earner.

Susan — New York, N.Y.: I am 64 and retired with a pension. I work in real estate now and earn more than $13,000 per year. My husband is 70 and retired. He opted to take his Social Security at 64. Does it makes sense for me to take spousal benefits or my own Social Security at age 66?

Larry Kotlikoff: You will likely do best just to take your spousal benefit starting at 66 and wait until 70 to take your own retirement benefit. Your check at 70 may or may not go up because at that point you’ll get, in total, the larger of your retirement benefit inclusive of the delayed retirement credit and half your spouse’s full retirement benefit. This total amount is mathematically equal to your own retirement benefit plus your excess spousal benefit, which will equal half your spouse’s full retirement benefit less 100 percent of your retirement benefit inclusive of your delayed retirement credits.

Luann — Summerville, S.C.: I took retirement benefits at 62. I am now 63 and my husband is two years younger than I am. A friend said that I could change my mind, pay back what I have received and then reapply at 66 for full retirement and it could be based on my spouse’s income. He has had significantly more income than I, so I would receive a substantial increase even though I would need to repay what I have received this far. Is this possible?

Larry Kotlikoff: Unfortunately, you only have one year to repay and start from scratch. So I think you missed that window. What you can and probably should do is suspend your own retirement benefit when you reach full retirement age (66) and start up your retirement benefit at 70 at a 32 percent higher inflation-adjusted value. When your husband reaches full retirement benefit, he should apply just for his spousal benefit and then at 70, apply for his own retirement benefit. To let him do this, you’ll need to file for your retirement benefit when he reaches 66, but suspend its collection. This strategy will likely maximize your lifetime Social Security benefits, although running it through a first-rate software program is the only way to know for sure.

This entry is cross-posted on the Rundown — NewsHour’s blog of news and insight.