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How Couples Can Profit from Social Security’s Quirks

A smart claiming strategy can really boost your retirement income

By Henry K. Hebeler and MarketWatch

(This article appeared previously on

We all search for the best place to invest our savings. For almost every person who hasn't yet started receiving Social Security retirement benefits, delaying them is one of the best ways to save. Even some couples where one spouse has already started claiming can benefit from some of Social Security's quirks.


The best Social Security alternative for a couple depends on their relative ages, Full Retirement Age benefits (Full Retirement Age is now between 65 and 67, depending on when you were born), longevity assumptions, pension alternatives (particularly pension survivor benefits), life insurance, amount of savings before retirement, returns on their savings, inflation and tax rates.


For most couples, the most important planning alternative is their retirement age and Social Security choices.

Comparing Filing at Retirement vs. Full Retirement Age

We'll illustrate one of the most beneficial Social Security alternatives below using the free Strategic Social Security Planner, which requires the use of Microsoft's Excel. The illustration only accounts for Social Security income, but the program has the capability of including all of the other factors mentioned above such as pensions, economics and investment assumptions.

(MORE: The Real Social Security Crisis Is Awful Service)


For the purpose of this illustration, we'll consider a case where Jane is both the younger spouse and has a Full Retirement Age benefit of only $500 a month. Bill, who is two years older, has a Full Retirement Age benefit of $2,000 a month. They don't have a pension, but will retire when Bill reaches his Full Retirement Age of 66, and both will file for Social Security benefits then. They estimate that Bill will die at age 85 and Jane at 90. Returns on savings are assumed to be equal to inflation, not an unreasonable assumption for any savings used for near-term expenses.


Case 1 illustrates the course that most couples take.They file at retirement age and begin taking Social Security then. The graph shows each of their Social Security histories in inflation-adjusted values versus Bill's age.


Note that Jane's Social Security income increases a huge amount on Bill's death because of Social Security's great survivor benefits.


Case 2 illustrates what happens if Bill files and suspends taking benefits at his Full Retirement Age.




Note that their retirement income is supplemented in the initial years by draws from savings, so if you add the savings draws of $32,000 to Jane's Social Security spousal benefit of $10,000, their total Social Security income in those years is $42,000. (Numbers are rounded.) For the remainder of retirement, the total Social Security is $42,000, which is $8,000 higher than the $34,000-a-year in Case 1. Not only that, but Jane's survivor income goes from $24,000 a year in Case 1 to $32,000 with file-and-suspend.

(MORE: 4 Social Security Mistakes to Avoid)

This example of file-and-suspend requires the use of $127,000 in savings. That's the cost of the couple's decision to file-and-suspend. They have a gain in cumulative retirement income in today's dollar values of $200,000, netting a gain of $73,000. The couple should actually start retirement with somewhat more savings, because they should also have a savings reserve for emergencies and to cover known future large expenses like the purchase of new cars, so they won't have to buy things on credit during retirement.


If Jane's Full Retirement Age benefit was more than half of Bill's, they likely would do better to file a restricted application. The program would illustrate that.


Social Security is the least expensive longevity insurance that you can buy, so the cost of $127,000 in this case pays off even more should either of the spouses enjoy a longer life. It's another great benefit of file-and-suspend.

It's probably the best investment an older person can make with savings. In a 3 percent inflation environment, it's a government guaranteed almost tax-free return of over 6 percent. This return would be considerably larger had the comparison been made starting Social Security at 62, if Jane delayed her spousal benefit to 66, if one of them lived longer or if inflation were higher.


That's the “security” in Social Security.


This article appeared originally on Henry (Bud) Hebeler writes for MarketWatch's RetireMentors.  He is former president of the Boeing Aerospace Company and vice-president for corporate strategic and operational planning for The Boeing Company.  He advises people on retirement planning through articles and programs on Analyze Now

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