“Relax? How can anybody relax and play golf?  You have to grip the club, don’t you?” – Ben Hogan

  • Social Security rules favor one-income households
  • A beneficiary is entitled to the larger of their own benefit or one-half of their spouse’s benefit

We often get asked by clients how to maximize Social Security benefits based on the ages and relative retirement benefits of each spouse in a dual-income couple relationship, which is a typical client profile today.  But for much of Social Security’s 84-year history, one breadwinner families with a stay at home spouse were the norm, and the program’s benefit structure still favors this style family.

Two income households often pay more in Social Security (SS) taxes than a one income household with the same level of income but reap smaller benefits per dollar of taxes paid.  That’s because the federal government only collects Social Security taxes on an individual’s income up to a certain threshold ($132,900 in 2019).

If a one income household earned $200,000 this year, its Social Security tax bill would be $8,240 ($132,900 X 6.2% payroll tax rate for employees).  If a two income household earned the same $200,000 split evenly between the two spouses, all of their earnings would be subject to the Social Security tax for a total of $12,400 ($100,000 X 6.2% X 2).

Remember, an individual must work at least 10 years to earn the minimum of 40 credits – four credits per calendar year – needed to be eligible to receive Social Security retirement benefits.  But the amount the worker receives is based on the highest 35 years of indexed earnings and the age when benefits are actually claimed.  So, each zero year in the 35-year calculation reduces future benefits.  Once you’ve locked in a 35-year record, you could have smaller earnings years or zero years leading up to retirement age and the total benefit due will remain based on those highest years that make up the 35-year calculation.  In other words, you can’t give back once you’ve hit the minimum requirements, but rather only maintain or improve upon.

If someone is entitled to two benefits, as a worker and as the spouse of a worker who is eligible for SS benefits, they would receive the higher of the two benefit amounts.

In many cases a spouse with a small SS benefit of her own will qualify for larger spousal benefit on her husband’s earnings record…..the same benefit she would receive if she had never worked outside the home.  Just think about this.  Even if one spouse has no Social Security benefit of her own, together they would get 150% of the worker’s monthly benefit for life.

A slightly different example that we see often is where the husband’s full retirement age benefit is $2,600/mo. and the wife’s is $400 per month.  If the wife claimed benefits, when she turns 66 next year, she would receive her full $400 per month in SS benefits even if her husband decided to delay his own benefits up to age 70.  Once the husband claimed his Social Security benefit, the wife would step up to the larger spousal amount of $1,300 (half of his full retirement age benefit amount)……NOT half of his age 70 amount.  People are usually confused with all of these rules but they do make a difference in financial terms and quality of life.

The rule of 8% everyone knows about.  If the husband claimed his benefit at age 70, it would be worth about $3,432 or 32% more than his full retirement age amount.  This is an 8% increase per full year that he waits after reaching full retirement age but only going to the age of 70.  Once he turns 70, you need to be receiving your Social Security benefits.

If the husband dies first, the wife’s survivor benefit would be worth 100% of what her husband was collecting at time of death.  So in the same example, she would now be receiving his full benefit, but her smaller benefit would drop out.  No double dipping.

Keep in mind that in order to receive the spousal benefit, the other spouse must be claims and is receiving their benefit regardless of how old they are.

Let us know if you have simple or in depth questions regarding your Social Security.  If you are wanting to do some of your own research, always use the source: http://www.ssa.gov


Blake Parrish, CFP®
Senior VP, Portfolio Manager
Phone: (503) 619-7237
E-mail: blake@bpfinancialassoc.com

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.”