In today’s episode, you’ll learn more about:
- The three types of Social Security benefits couples need to understand
- Why the higher earner’s decision has the biggest long-term impact
- How to coordinate timing between spouses
- Key considerations like working while claiming and the earnings test
Listen Now:
The Smart Take:
Social Security is often treated as a simple decision — pick an age and file. But for couples, it is much more than that.
In this episode, Tyler Emrick, CFP®, CFA®, explains how Social Security decisions should be coordinated between spouses and why the timing of those decisions can impact your retirement income by $100,000 or more.
With growing concerns around system changes and long-term funding, making the right decision matters more than ever.
Social Security is not just about when you file — it is about making coordinated decisions that create the most income and protection over both lifetimes.
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The Hosts:
Kevin Kroskey, CFP®, MBA – About – Contact
Tyler Emrick, CFA®, CFP® – About – Contact
Episode Transcript:
Tyler Emrick:
Most couples make the same mistake with Social Security, and it can really cost them. And the problem is, it’s not always obvious, because Social Security isn’t just when you start benefits, it’s how those benefits and decisions work together over both your lifetimes. Today, we’re going to show you how Social Security actually works for couples, and the key decisions that can have a lasting impact on your lifetime retirement income.
Walter Storholt:
Hey, it’s time for another episode of Retire Smarter. I’m Walter Storholt, as always, joined by Tyler Emrick, CERTIFIED FINANCIAL PLANNER, a Chartered Financial Analyst, and of course, a Wealth Advisor at True Wealth Design. And Tyler, good to talk to you once again about a great topic today, Social Security. It’s one of the most common topics any retiree is going to be thinking about, talking about, hearing about. But we’re going to get a little bit more specific today by talking specifically about Social Security strategies for couples, which obviously still applies to quite a few people, but we’re just going to zero in on those folks today.
Tyler Emrick:
We are, absolutely. Yeah, and Social Security is always a fun one, it’s wrote about all the time, I mean, a ton of articles. When I was doing a little bit of prep work for the podcast today, I was like, I came across a headline, let me read it. “Lawmakers Warned Social Security Changes Could Impact Millions.” And I was like, oh, what’s this? Do I not know what that is? Is something coming in here? And then they were talking about some of the staffing shortages and some of the delays that Social Security has been having. I don’t know if any listeners have tried to call Social Security as of late, but the hold times can certainly be there, and it seems like those issues have been exacerbated a little bit as well. So, yeah, that headline stuck out at people.
Walter Storholt:
You’ve been hearing a lot about the TSA waits and the TSA lines and things like that, but it makes sense that Social Security would also be impacted here.
Tyler Emrick:
Absolutely, yeah. And then of course there’s the inevitable headline about always, well, hey, is Social Security going to be there? Is it going to run out? I mean, the Trust Fund Report that comes out each year, we’ve talked about it on, I think probably this year on Social Security podcasts. If we haven’t, certainly towards the end of last year, you can go back and probably find that episode. But that report’s really important as we think about, what is the status of Social Security? Is it going to be there? What happens if no changes happen? We’re not diving in that today, but certainly from the last report, we do have that looming 2032, 2033 timeline when the Social Security Trust Fund would then go out and be run out.
Now, that doesn’t mean, hey, if nothing changes by that time, benefits are going to actually be stopped. I think the reduction for most of the numbers that I’ve seen is somewhere between maybe a 20 to 30% reduction in benefits if nothing happens to current individuals on Social Security. So, obviously that’s over there looming in the background and always a good topic.
But what we’re going to zoom in today, just like you had mentioned, is that interplay between couples and some of the claiming strategies that are still out there. There has been some law changes of course, over the years that have simplified it a bit, but there are certainly some key things that we want to make sure that you’re aware of. So yeah, that’s [inaudible 00:03:14].
Walter Storholt:
I was a little surprised when we developed the outline for today’s show. And just a behind the scenes view for folks, Tyler organizes his content with little headlines that break the episode up. Right? That’s not rocket science to anybody, but one of your headlines, Tyler, was, “Social Security decisions matter more than ever.” And it kind of hit me as a bit of an odd statement, right?
Tyler Emrick:
Sure.
Walter Storholt:
Because you keep hearing about Social Security going away, being diminished. It shouldn’t be the center of your financial plan. So for you to say that the decisions matter more than ever, a little bit counterintuitive to maybe some of the other noise that you might hear about Social Security, so.
Tyler Emrick:
Oh, absolutely.
Walter Storholt:
But I know you’ve got particular reasons for that.
Tyler Emrick:
No. Oh, for sure. And I think they all come down to really the understanding of and the concept of, what are even my decision points and what do I need to be aware of when I start thinking about, all right, hey, I just turned 62, I can start my Social Security. Should I? Should I not? And what are some of those key levers that individuals have in their pocket to help them frame the decision and think about it? And that’s, as you looked at the outline, I think one of the most important things that we can discuss today is really just trying to figure out and say, hey, do you understand and know all the benefits that are afforded to you from Social Security? Because Walt, I get it all the time when I say, “Hey, you know if you’re a married couple, you have three benefits that are afforded to you through Social Security?” And everyone’s like, “Three benefits? What are you talking about? I mean, I got my Social Security. What do you mean three?”
So, I think the basic understanding of just how those three different benefits interact with each other is really half the battle as you start thinking about just, well, when do I want to start? When does my spouse want to start? And how can we maximize those benefits? Because at the end of the day, Walt, that’s what we’re trying to do, right? Maximize the cumulative benefits from Social Security over some expected life frame or lifespan. Obviously, you tell me when you’re going to pass Walt, I can tell you when to start Social Security, so.
Walter Storholt:
Right, this becomes a very easy math equation at that point, right?
Tyler Emrick:
It does, right? But when we backtrack to those three benefits, I mean, the first one’s probably the easiest is, hey, that’s the benefit that is afforded to you from your own working history. Right? You paid in through payroll taxes all those years. Depending on how much you made, how much you paid in, you have a benefit that’s afforded to you. That’s what you get on the Social Security statements that used to be mailed out to you. Now, obviously you go on ssa.gov website and you can get all the details on what those projected amounts are, right? That’s the one that most individuals are familiar with.
The second benefit is what’s called a spousal benefit, okay? And generally speaking, the way you can think about that is, this is the benefit that is afforded to you off of your spouse’s working history. Okay? And there is a calculation to determine what that amount is, but for purposes of just the podcast today and the way we’re thinking about it, it starts at about 50% of what your spouse is due at their full retirement age. Okay? So when you go to file for Social Security, what Social Security Administration’s going to do, they’re going to look and say, “Well, hey, what is your benefit that you get from working? And then what is your spousal benefit?” If your spouse is currently drawing Social Security, which is one of those little key caveats that you need to know about to be eligible for a spousal benefit is, and what is that amount? So half of what your spouse is due at full retirement age could have some reductions in there too. And they’re going to look at those two-
Walter Storholt:
Is that a common situation, where maybe you have a spouse who is mostly stay at home maybe throughout their career and so they don’t have a lot that was into Social Security, their other spouse worked their whole career, and so that’s where that 50% of theirs may be higher than whatever they were-
Tyler Emrick:
You nailed it.
Walter Storholt:
… going to be getting. Okay.
Tyler Emrick:
That’s the most common place that we see it, Walt, for sure, no doubt about it. And as the wage or income dispersion becomes wider too between working spouses, right? If one spouse was a very high income earner and the other spouse maybe continued to work part-time or whatever, obviously that would be another one. But you hit the nail on the head, that is the most commonplace time when we actually see that come into effect.
Of course, with the passing of the Social Security Fairness Act too, those government employees and those individuals that maybe didn’t pay in through Social Security, we’ve seen quite a bit of that here in Northeast Ohio, where if you’re eligible for that, you probably have already seen some of the benefits come your way. Certainly, if you’re getting ready to retire and you haven’t paid into Social Security, know that, hey, the WEP and GOP reduction went away with the Social Security Fairness Act. So, that opened the doors for a lot of spouses to potentially get some type of spousal benefit from Social Security as well.
So, but understanding those two benefits and how they work, I think is extremely important and understanding the fact that you are not going to get both, Walt. Can’t double dip. You are basically going to get the higher of the two of those benefits, right? So when Social Security does that calculation, it’s a simple, hey, which one’s higher? That is the one that’s going to come down the pipe and that’s the one that you’re going to get. So, those are the first two.
And then the third benefit is a widow’s benefit or a survivor benefit, right? This would be for those circumstances where your spouse has potentially passed away, and then you are eligible for a benefit based off of their working history. Actually just got off a call with an individual where her spouse had passed and her child actually was getting a widower’s benefit from Social Security. So, if your child’s under a certain age, they can actually draw a benefit from Social Security from the deceased spouse as earnings history. Of course, the other caveat there with the widow’s benefit is, there are some timing considerations there that I think are very, very impactful as we think about how that benefit comes to fruition. The first of which is, hey, you can start your benefit through widow’s benefit at age 60. Right? Normal Social Security, you can’t start till 62. So, starting early for those widow’s benefits is another little key quirk there as you think about what options or what benefits are afforded to you from there.
So, those are the three. Walt. Your own, your spousal benefit, and your widow’s benefit. And yeah, so just understanding that and understanding there’s half the battle as you start to think about, well, hey, when do I want to start?”
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Walter Storholt:
Sounds like this all is really driven and starts from the high earner though. When you start talking with clients and you’re trying to figure out, all right, where’s our starting point for decision making? It’s, okay, well, let’s just look at the two numbers, who’s this highest? And then that’ll start making the equation a little bit easier to figure out?
Tyler Emrick:
Sure, absolutely. Because you think about, well, hey, what is the benefit of actually waiting for Social Security? One of the big benefits is paid out in the form of what they call delayed retirement credits, which is this general about 8% increase per year in your benefit. That increase happens all the way up until the age of 70. So, well, inherently, if your benefit is higher, you’re getting a bigger increase based off of that delayed retirement credit. So the combination of, and this is where we think about it from a couple’s standpoint, well, do we both start at the same time? Does one of us wait and one of us start early? Well, understanding that, well, hey, it’s going to be more impactful over a long, happy, healthy retirement for the higher income earning spouse to likely delay benefits because they are getting a higher benefit percentage for delaying. And also, when you think about how that widow’s benefit works, that skews it towards the higher income spouse waiting as well.
What I mean by that is, if you run into a scenario where you as a couple, one of you decide to start it early and one of you decide to delay until age 70. And let’s say the higher income earning spouse actually decides to delay till 70, and heaven forbid the higher income earning spouse passes away right at 70. Well, didn’t even get a benefit, didn’t start, didn’t get their first paycheck. Well, the surviving spouse is still going to benefit from that delay, because their widow’s benefit is going to be based on that higher amount for waiting.
Walter Storholt:
So it’s not like it all went to waste, which is what a lot of people fear about Social Security.
Tyler Emrick:
100%, right? But if you run the flip of that scenario where the higher income earning spouse starts early and the lower income earning spouse, lower benefit delays till 70, and that spouse passes, well, hey remember, we could only draw one benefit at a time. So, Social Security will look at the lower earning spouse’s Social Security benefit, and if it never passes what the higher income earner’s getting, they’re not going to get a widow’s benefit, right? They’re just going to continue to maintain and live off of their one. So, there is really this little caveat here that says, well, even from a baseline standpoint, a lot of our initial projections are going to skew towards that higher income earning spouse continuing to delay for those two key factors that we just discussed from there.
And I see it come to fruition quite a bit, right? A few years ago, I had a family that I worked with for a number of years who was running that strategy, right? The lower income earning spouse had actually kicked in already and was drawing benefits, and the higher income earning spouse was just delaying and waiting until 70. And the higher income earning spouse actually got diagnosed with a big health concern that would really shorten, it was going to shorten his life expectancy. And one of the big key topics of areas is like, well, hey, do we readjust this? Right? He hadn’t quite reached 70 at that point. He certainly could have started Social Security. Hey, we could have backdated Social Security six months and gotten six months worth of payments if we wanted to. So, this was really on top of their mind like, well, hey, does our strategy still makes sense?
And when we got down into the actual numbers and the life expectancy of the spouse that was already drawing benefits, that widow’s benefit being higher still shined through and the math still said, okay, yeah, even with your life expectancy potentially decreasing here with the health condition, we still should continue to wait till 70 because that widow’s benefit is going to be so impactful for the surviving spouse and her life expectancy. So even, hey, what do we say, health drives all, right? And life expectancy. I mean, there are certain scenarios here where the interplay between those two benefits might not be what’s exactly expected because that’s very uncommon, right? I mean, even when I ran in the numbers, I was initially thinking maybe we should start kicking into Social Security and see. But when you get down and actually run it, we decided to continue to delay.
Walter Storholt:
It makes the head hurt a little bit, because you’re dealing with a lot of what ifs. And I know that you guys look to try and eliminate as many question marks as you can when it comes to financial and retirement planning, but with this one, you got a lot of levers you can pull. We haven’t even even really talked about how it fits in with the rest of the plan.
Tyler Emrick:
Sure.
Walter Storholt:
You’re just looking at it in the Social Security vacuum, because that could certainly change things as well, as you talk about coordinating. What else do we have coming down the pike that’s got either more flexibility, less flexibility? I’m thinking of things like pensions or just how you’re going to withdraw from other accounts. Do you guys view Social Security in a vacuum like that or do you end up looking at it with the entire plan, and could that actually influence your decision making?
Tyler Emrick:
Yeah, I think we always want to be looking at it like what you were alluding to, right? With the entire plan in mind and how does it fit in?
A great example of that would be is, hey, even in the scenario that we just ran where we say, hey, generally speaking, let’s let the higher income earning spouse delay to 70, lower income earning spouse start at 62. Well, hey, there are other rules here where that might not make sense. One of the best examples would be the earnings test, where if you do take your Social Security before your full retirement age, which for most individuals, that full retirement age is going to be 67. The Social Security says, “Well, if you make too much money by working, W2 income, 1099 income, earned income specifically, then we’ll actually go in and take your Social Security away.” So in a scenario where the spouse who we had ideally liked to kick in at 62 was still working or had a part-time job and was making too much money, that could be a perfect scenario where, hey, let’s continue to delay until that income drops below the earnings test or until it fits in.
So, Social Security has all these little quirks and features and tweaks that come into play that we want to make that decision within the holistic family plan and every situation might be different, right?
Most of the time when we start these conversations, especially with families, “Hey, I wanted to talk about Social Security. My friends, they kicked theirs in early because of this.” Or, “Hey, my friends are waiting till 70,” because we’re always talking about it. It’s a big decision, it’s on a lot of retirees’ mind. It’s a big source of income, right? We talked about Social Security and some of the funding issues, but it truly is for a lot of families still a very large source of income that they’re living off of from year in and year out and they rely on that Social Security benefit quite a bit. So, understanding those tweaks and how they apply to your specific situation, I think is extremely important. So it’s harder to say, “Hey, my friends were doing it this way. We’re leaning towards that way.”
And it starts with education too, Walt. I mean, especially with some of the headlines where Social Security running into the issues, maybe running out of money. You really got to make sure that you’re using and having a very thoughtful conversation around, “How does this impact me not only today, but hey, 30 years down the road when I’m in my 80s or in my 90s and we’re drawing these. What is the impact and how big do those numbers get?”
Walter Storholt:
Yeah. What a tool that this can be for couples. And again, it makes it even more interesting because it’s not just about, “How can I maximize it for me?” It might say, “Hey, what maximizes this for my spouse?” We didn’t even really dive that deeply into age differences in couples, but imagine a big age difference where you’re like, “Oh, man, I really want my spouse who’s much younger than me and probably going to outlive me. We really need to maximize this for them,” and even more motivation probably to delay. So, there’s all sorts of other nuances I’m sure we could start exploring. And that’s what you guys pretty much do in the office every day.
Tyler Emrick:
You got it, yeah.
Walter Storholt:
You’re running these tests and figuring this out.
Tyler Emrick:
Oh, absolutely. That comes back to, “Hey, what’s your family dynamic? What’s your specific situation? How are you thinking about retirement? What does it look like to you?” That’s why we spend all that time upfront to try to understand that or at least have pretty productive and good conversations. It’s never perfect, Walt, right? Things change inevitably, but the more we can understand what you’re trying to accomplish, how you see your wealth, how you see yourself using it, the better we can help you navigate in these ones. And to your point, I mean, the age difference is certainly a big one as we think about the impact of potentially delaying, especially that higher income earning spouse.
Walter Storholt:
Yeah, absolutely.
Tyler Emrick:
100%.
Walter Storholt:
Well, great outline of, again, just one of the little elements of a financial plan that the team at True Wealth Design takes clients through each and every day in the office and remotely, working with folks all across the country. From wherever you are, if you would like to explore a relationship with True Wealth Design, you can certainly do that. We have a link in the description of today’s show. You can also just go to truewealthdesign.com, look for the, Are We Right For You button or the Let’s Talk button I think we changed it too, right?
Tyler Emrick:
Right, [inaudible 00:19:29].
Walter Storholt:
Look for the Let’s Talk button, you schedule a 20-minute discovery meeting with an experienced wealth advisor on the team, see if you’re a good fit to work with one another, and then take those next steps. But it’s a very easy way to get introduced, to explore some of your goals, and see where some of the gaps in your existing financial plan might be, and how the True Wealth team can help. Again, click the link in the description or go to truewealthdesign.com to schedule that at your convenience.
Tyler, thank you for all the help today, great episode. Looking forward to catching up with you again next time.
Tyler Emrick:
Oh, absolutely. See you on the next one.
Walter Storholt:
Sounds good. We’ll see everybody next time right back here on Retire Smarter.
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