The scenario in brief: A married couple, both age 63. One spouse no longer works, and was never a high earner. The other spouse is working, and has been earning at or over the max SS rate for 35+ years, so that spouse’s SS payout will be about as high as it can be.
They currently plan to have the nonworking spouse begin collecting SS now based on their earning history. That would be approximately $500 a month at this point. Then when the earning spouse eventually retires at the full retirement age or later, they plan to collect that SS benefit plus change the nonworking spouse’s benefit over to that of half the working spouse’s benefit.
this follows a plan suggested at the Motley Fool under the section captioned " When one spouse will get a much higher benefit than the other".
Any obvious downsides or concerns about it?
My wife and I are considering this scenario. We will be running it past our tax guy and accountant, etc. But it’d be nice to know of other factors ahead of that, if any.
It would help us continue to subsidize our daughter’s healthcare, as her annual co-pays exceed her annual income due to chronic illness. Sadly she’s not eligible for SS since she has been too ill to work most of her life.
I am not an accountant, but this is pretty much what we’re doing, except I’m getting spousal benefits from my wife until I turn 70, something you can do if you were born early enough.
Strictly speaking the nonworking spouse collects their benefits, which then gets supplemented until it hits half the benefit of the working spouse. If the working spouse retires before full retirement age, the benefits get decreased. I think they don’t get increased if they retire after, but I’m not sure about that. In our case half my benefits at age 66 are still higher than my wife’s benefit at 70, so it didn’t matter.
Check with your SS office. They have a nice system where they will call you back so that you don’t have to sit on hold for hours. All the SS people I’ve dealt with have been knowlegable and helpful.
IANA expert, but being in a similar age, income, and family situation as QtM I’ve done a lot of reading and research and I endorse the plan as described by the OP.
@Voyager is just older enough than we are that he was able to do a much more advantageous switcheroo between self and spousal benefits that has since been outlawed.
SS is one of those programs where there are a only a few knobs to twist and levers to tweak at retirement time but there are no do-overs. Get it right the first time or suffer the consequences for the rest of both your lives.
If you’re the sort who wants to plow the ground in enough depth to be confident of your own understanding I heartily recommend these two books which can probably be had from your library.
Full details for the complicated cases and the investment / retirement planning nerds in the crowd:
Easy(er) reading w lots of rationale to help the more seemingly arbitrary rules make at least some sense:
These latter folks also have a website Maximize My Social Security where for $40/year you can insert your detailed lifetime income and demographic facts and have them run out a bunch of SS claiming scenarios so you can see what works best for various assumed longevities, future interest rates, etc. To me it was well-worth paying that trivial fee on a one-time basis to run through all the alternatives. I doubt I’ll re-subscribe to use their site again until/unless another significant rules change comes in before my claiming plan is a done deal. Which done deal is presently slated for late 2028.
Ref my comment about Voyager above, the rules went through a significant upheaval in 2015/2016. Make sure any SS advice you read from anywhere is dated after that.
thanks for the additional info. It looks like there’s no real downside to the Mrs. starting to collect now, and nothing to gain by having her wait to increase her benefit, as it’ll only go up a tiny bit until I retire and then it nearly triples. And if I shuffle off this mortal coil sooner than expected, she’ll get the widow’s SS payments plus my pension until she dies. Plus all my stuff. Good thing I trust her not to kill me . . .
Can the lesser earning spouse start taking payments while still working?
Scenario in our household similar. I will be max benefits and will work past 70 very likely. Hers is less than half of my benefits. She is 62 and I am 61, half a year behind her. She also will likely continue to work to 70 at least.
The semi-ignorant replying! Any benefits drawn before she reaches full retirement age will be subject to reduction based on how much income she has earned. You’ll need to check with someone less ignorant than I for precise details. But if she earns a significant amount, benefits are greatly reduced.
Once she’s age 62, yes she can. Whether that’s her benefit based on her working life or her half-of-your-benefit based on your working life. But …
As long as she’d below FRA of 66-ish, her benefit (either one of the above) is reduced by $1 for every $2 of W2/1099 income she generates above about $19K. So it takes rather little earnings to wipe out her benefit. e.g. if she earned 49K, that’s 30K above the 19K limit, so she’d forfeit 15K of whatever benefit she was entitled to. Which is probably the lion’s share. The net effect is that a lot of the money she earns on the job is just replacing money she was getting for free from SS.
This forfeiture is temporary. Once she hits FRA of 66-ish they’ll stop the forfeiture and also slowly pay her back the money she forfeited due to this rule.
All this is separate from the question of whether the benefits she gets are taxable. Given your family income situation, you’ll be paying ordinary income taxes on 85% of whatever she does receive from SSA. At what’s effectively your marginal rate.
Bottom line, it makes very, very little sense to a) be below FRA; b) AND draw SS; c) AND do W2/1099 work in excess of the earnings limit. Which limit is ~19K in 2021 and is indexed for inflation from year to year.
But up to the 19K, there is no downside to working while below FRA & also drawing SS at the same time. Other than the well-trodden discussion about the tradeoff between waiting to draw a higher benefit vs. drawing a smaller benefit earlier for more years before death.
Late add: in the calendar year the person gets to their FRA the earnings limit is different and much larger = ~50K. Trying not to penalize a worker who works half a year at their career job then hits their FRA in, say July. They should be able to get their full SS benefit in the following months without being penalized for working the first half of the year before they were old enough to collect their full benefits. That’s the theory, but the actual formula fits much better for low wage workers than it does for doctors, executives, & airline pilots.
Upthread I cited two books worth reading, or at least skimming. Given we’re talking about $20K - 40K per person per year for life, there’s a decent pot of money here. It’s probably worth a few hours and a few dollars to understand the rudiments of the owner’s manual for this thing.
IANA pro at this: I just read the books and try to boil it down to quickie practice notes so I know where the pitfalls are.
Yeah - I remember some years back reading some advice where the lower-earning spouse begins claiming on her (his) spouse’s income as early as possible, while the higher earner defers collecting until age 70. I may have the details wrong on that. I do know my brother (turns 68 this year) did that with his ex-wife - he’s claiming a benefit based on her earnings. She’s annoyed, even though it doesn’t cost her anything.
Being 6 years younger, my husband and can’t do this any more (the loophole was closed sometime after I did that simulation). Not sure it would matter with us, as our benefits will be fairly similar last time I checked.
That makes it less useful. My wife claimed just before FRA, I was at FRA at the time. If we were going to get similar benefits, she’d give up some at 70. However since her age 70 benefit is less than half mine, going on spousal benefits when I hit 70 is an increase for her.
Even before the hack I did there was one where I could claim benefits at FRA, she could get half mine, and then I could stop collecting until 70 while she still collected. That would be even better, but that loophole got closed before I could claim it.
As I probably said there are some sites that let you experiment with various options, but the one I used has vanished, so I don’t have any links.
