Social Security typically serves as a financial lifeline for singles and married couples during retirement. And couples often benefit from the program especially since Social Security pays spousal benefits to people who don’t qualify for benefits based on their own income history.
For example, suppose there is a couple where one spouse works and the other does not. Once the working spouse files for Social Security, the nonworking spouse can register for spousal benefits equal to half the amount the working spouse receives.
In addition, in situations where one of the spouses who collects Social Security predeceases their partner, the surviving spouse is entitled to Social Security survivor benefits. These are equal to 100% of the former monthly benefit of the deceased spouse (provided that the surviving spouse does not file an advance declaration).
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But new research from Lafayette College finds that spousal benefits aren’t as helpful to couples as survivors’ benefits. And it also begs the question: should spousal benefits be reduced in favor of larger survivor benefits?
Dealing with longevity risk
One of the biggest challenges couples (and singles) face when planning for retirement is longevity. It is difficult to predict how long a given couple will live and how much income they will need given that.
Social Security protects against this to some extent by paying monthly benefits for life. Even after the death of the beneficiaries, their surviving spouses are entitled to survivors’ benefits for the remainder of their their lives.
It’s a pretty good system at first glance. But the aforementioned research reveals that many couples would be better served if spousal benefits were to be reduced slightly and survivors’ benefits were to increase. This especially applies to single-earner couples where only one person earned enough to qualify for Social Security based on their own earnings.
From a cost perspective, the authors of the research say cutting spousal benefits could free up enough money to increase survivor benefits. That’s important because, as it stands, Social Security is incredibly strapped for cash, to the point that universal benefit cuts are a distinct possibility in the not-too-distant future.
Learn about strategies for couples
If you are married and are heading towards retirement, it is important to find out about the various benefits to which you may be entitled under social security. It’s also important to come up with a ranking strategy that is most helpful to you as a couple.
Of course, this strategy is likely to largely depend on whether you and your spouse are working or not. If only one of you qualifies for Social Security benefits and the other depends on spousal benefits, you’re in a different boat than a couple where both people have worked and can claim benefits based on their respective salary history.
Either way, be sure to spend some time figuring out when to sign up for benefits, especially in a situation where one spouse has a much higher income and the lower income is likely to live. Longer. In this scenario, you might consider delaying your filing to leave your spouse with the most generous survivor benefit possible, especially since there are no real plans to increase these benefits at this stage of the game.
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