Social Security commonly serves as a financial lifeline for singles and married couples in retirement. And couples often benefit from the program even more because Social Security pays spousal benefits to people who don’t qualify for benefits based on their own earnings history.
For example, suppose there is a couple in which one of the spouses worked and the other did not. Once the working spouse claims Social Security, the non-working spouse can apply for spousal benefits equal to half the amount the working spouse is paid.
Also, in situations where one of the spouses collecting Social Security predeceases their partner, the surviving spouse is entitled to Social Security survivor benefits. Those are equal to 100% of the deceased spouse’s prior monthly benefit (provided the surviving spouse does not apply early).
But new research from Lafayette College reveals that spousal benefits aren’t as helpful to couples as survivor benefits. And it also begs the question: should spousal benefits be reduced in favor of higher survivor benefits?
Address longevity risk
One of the biggest challenges couples (and singles) face in the course of retirement planning is longevity. It is difficult to predict how long a given couple will live and how much income they will need in light of that.
Social Security protects against that, to a certain extent, by paying monthly benefits for life. Even after beneficiaries die, their surviving spouses are entitled to survivor benefits for the remainder of their lives. his it 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 modestly reduced and survivor benefits increased. This is especially true for single-income couples where only one person earned enough to qualify for Social Security based on her own wages.
From a cost perspective, the authors behind the research say that reducing spousal benefits could free up enough money to increase benefits for survivors. That matters because, as it stands, Social Security is incredibly cash-strapped, to the point where universal benefit cuts are a distinct possibility in the not-too-distant future.
Read about strategies for couples
If you’re married and approaching retirement, it’s important to read about the different benefits you may be entitled to under Social Security. It’s also important to come up with a filing strategy that is most helpful to you as a couple.
Of course, that strategy may depend heavily on whether or not both you and your spouse worked. If only one of you is entitled to Social Security benefits and the other is dependent on spousal benefits, you are in a different boat than a couple where both people worked and can claim benefits based on their respective earnings history.
Either way, be sure to spend some time determining when to sign up for benefits, especially in a situation where one spouse earns much more and the one earning less is likely to live longer. In that scenario, you might consider delaying your filing to leave your spouse the most generous survivor benefit possible, especially since there are no real plans to increase those benefits at this stage of the game.
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