Money & Policy

The Social Security ‘Split’ That Pays for Couples

This clever strategy for claiming benefits can boost how much you'll receive

(This article originally appeared on MarketWatch.)

Yes, waiting until your “Full Retirement Age” — or longer — to begin collecting Social Security is good advice for many people. But some couples might benefit from pursuing a “split strategy,” where one spouse claims a payout at age 62.

Most people are familiar with the advantages of waiting, if possible, to begin collecting Social Security. The size of your benefit increases by roughly 8 percent each year you delay claiming beyond your Full Retirement Age (now between 65 and 67), up to age 70. That said, about 80 percent of Americans in recent years have filed for benefits before their Full Retirement Age. (To determine your Full Retirement Age, visit this site.)

A Third Option for Married Couples

Married couples, for the most part, pursue one of two strategies: Both spouses grab benefits when they reach 62 (the earliest age for claiming benefits and the one that results in the biggest reduction in the size of your payout) or both wait until age 70, when benefits “max out.”

(MORE: Social Security's Real Retirement Age is 70)

But as Kelly Greene reported recently in The Wall Street Journal, a third option — a so-called "split" strategy — can help some couples preserve the biggest chunk of their retirement assets in the early years of retirement.

An analysis by T. Rowe Price Group, the Baltimore-based mutual fund firm, started with two spouses retiring at age 62 and 59. The lower earner grabs Social Security at age 62, while the higher earner begins collecting a spousal benefit at age 66 and then switches to his own benefit at age 70. (And yes, that switch is allowed under Social Security Administration rules; find out more here.)
Additional assumptions: The couple is seeking to replace 75 percent of their income before retirement, and they would tap their nest egg to make up the difference between their Social Security checks and that goal. Prior to retirement, the husband was earning $98,000 a year; the wife $68,000. Finally, the spouse with the higher benefit is assumed to die at age 83, and the surviving spouse lives to 95.

Sizeable Savings with the Split Strategy

When T. Rowe Price ran the numbers, this couple — assuming both claimed Social Security benefits at age 62 — would receive a lifetime total of $1.1 million in Social Security and would need to make $3.4 million in retirement-account withdrawals. But when the same couple follows the split strategy (or the both-wait-until-age-70 strategy), they would need $300,000 to $400,000 less from their own retirement savings to generate the same retirement income.
(MORE: Preparing for Social Security: A 7-Point Checklist)

Why the difference? The surviving widow would receive almost twice as much each year — $39,000 vs. $22,000 —  in Social Security income than if both spouses claimed benefits at age 62. What’s more, the split strategy can help a couple retiring long before age 70, because the cumulative withdrawal amount from the couple’s savings until the wife turns 70 is $142,000 less than if both delayed Social Security as long as possible.

Says Christine Fahlund, a senior financial planner at T. Rowe Price: “You really don’t want to front-load your retirement withdrawals, especially if the markets are going down.”

Glenn Ruffenach is News Editor at The Wall Street Journal, responsible for the Journal’s coverage of retirement finances and retirement planning.

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