The Top 3 Social Security Mistakes Couples Must Avoid

So with survivorship benefit, it does benefit the surviving spouse if the deceased spouse waits as long as possible.

So sometimes you might see a lower-earning spouse actually claim on their record, maybe early. That depends on people's life expectancy and just what they have fears of or what they want to do, or it could mean they need the cash flow. And maybe they think one spouse is going to live longer than the other spouse. But then they might have the higher earning spouse delay until 70 because the

longer they delay, the higher the survivorship benefit. it. Welcome to the Healthy and Wealthy Retirement, where your certified retirement counselor, Mark Struthers, takes a holistic approach to retirement. Going beyond finances and embracing holistic well-being, this YouTube channel. Music. Will address not just the financial part of retirement, but also the social, the physical, and the emotional parts of retirement. Everything you need for healthier, a wealthier, and a happier retirement.

Welcome to the Healthy and Wealthy Retirement. My name is Mark Struthers. I'm your host. Thank you for joining us. Today, we're talking about Social Security. We're talking about three top mistakes I see couples make when it comes to claiming Social Security. Social Security is still the cornerstone of our retirement system. I know a lot of folks are discounting it or not actoring it into the financial plan, and that's fine. But for many people, they still rely on it.

And even if you are uncertain, at least try to make sure you have a plan around it. You paid for it. If you are going to get it, try to make sure you make the most of it around the rules that they have. Number one, mistake is not coordinating when to claim benefits with the spouse. And part of that is also claiming too early. So claiming too early and not coordinating benefits. This one is costly because if you do claim early, it's a permanent decision.

So you will have a permanent reduction in benefits, and it's not just the reduction in benefits. And the inflation adjustment going forward is also on a smaller amount, so you get less that way too. So Social Security has cost of living adjustment. That's the inflation adjustment. It's not perfect, but it's not bad, and it's actually really good compared to most pensions. So claiming too early and especially when you're not coordinating that with your spouse.

When people think about Social Security, I think it's helpful to give them three different points in time. Full retirement age, FRA, which is 67 for most people, 66 to 67. We'll just say 67 to keep it simple. That's where everything is based. If you claim earlier, as early as 62, you get a reduction in benefit. If you claim later, as late as 70, you get a much higher benefit. And that inflation adjustment is on the lower higher amount, or you could say FRA is just right, full retirement age.

Now, if you do wait until age 70, you get 8% per year, not compounded, but that's a pretty good rate of return. When interest rates were low, you know, we're talking very low, 0, 1, 2% on savings accounts, a guaranteed 8%, which if you assume Social Security is going to be there. It's guaranteed. If not, I get it. So, and also knowing that it doesn't have to be at 62 or at 67 or at 70. If you claim at 63, you get more than if you claim at 62.

64, more than 62. You claim at 67, you get more than 66 and so on. So it's prorated based on when you claim. I think it's also helpful to know there's break-even points or crossover points. So if you claim it's 62%. Rather than full retirement age, 67, you have five years of payments that you wouldn't have. So even though you have a higher payment at 67, you have to live long enough in order to make up for the payments you missed. And that's the crossover point or break even.

So understanding that can help people make a decision. So to give you a rough idea, the crossover point, if you claim at 62 versus full retirement age, is generally late 70s to early 80s, late 70s to 80s. So just say late 70s. Claiming at 62 versus full retirement age is somewhere right around 79, probably plus or minus a year generally. If you claim at full retirement age versus 70, you have to live into your early

80s in order for that to pay off. So those three years, you have to live long enough in order to get those back. So we'll call it 8283, somewhere in there. Now, there's some folks when they see that, they say, you know what? I realize that I'm taking on more longevity risk because Social Security is that guaranteed income. Again, I know there's solvency questions, but I don't want to miss out.

And quite often, it actually happens a lot with people in the healthcare industry where they see folks who often scrimp and save, and they delay Social Security just to have them not enjoy it when they are healthy enough. And that perspective is valuable. You can't dismiss it because you want to make sure you're enjoying your healthier years, which are usually the 60s and 70s, but just so you're aware that if you do live to 90 or 100, that you are taking on that risk.

And that's where financial planning is so valuable. You can model those things in and say, if this goes really well, this might happen. If it doesn't, this might happen. So you have that knowledge as you're moving forward to time, because that often affects not just major decisions like Social Security, but even some micro decisions. Do I have a part-time job? Do I keep working? How much do I spend? And so I've had lots of folks who have claimed early.

Now, often it's in coordination with spouse for reasons we'll talk about in a second. But understanding the way the payment works as far as claiming at 62 versus 67 versus 70, we're in between. And understanding those break-even points can help you make a better decision. Number two mistake is underestimating the impact of working while receiving benefit.

So if you claim benefits before your full retirement age and continue to work, a portion of your benefits might be temporarily withheld within certain limits. One, this comes as a surprise for people, so they're not ready for it. Now, when they do reach full retirement age, their benefit will increase. You'll get your money back. But you could see where in the short term, this interrupts your cash flow. And it's a lot tougher to get a handle on making sure you're getting paid what you do.

And again, so we've discussed more and more working with the Social Security Department has become challenging. If you do have things out of the ordinary or mistakes happen, it's tougher to get them corrected. So, just make sure you're aware that if you claim before full retirement age, you have a reduction of benefits, get it back. And don't forget there's tax issues too. More and more your Social Security will become taxable the more you make, up to 85%.

And that could affect other things. It could affect credits or deductions, Medicare taxes, property tax rebates. So, you need to make sure you're aware that what the work will have. Now, ideally, if you are going to work, see if you can't wait until after full retirement age, because after that, there's no temporary reduction. Number three, failing to understand spousal and survivorship benefits. So this kind of relates to our number one.

Often if you have a folks, some folks who say, I want to claim early, and sometimes it's not really out of need. And I see that a lot to where they just, they'd want to make sure that they don't leave anything on the table. They quite often might have the lower earning spouse claim first because there's less to lose. The inflation adjustment, everything else is less and have the higher earning spouse wait the claim.

And knowing how the spousal benefit and also the survivorship benefit works as well. So, you might have a lower earning spouse, might say, if I claim on my record, the amount's going to be too small, I'm going to claim on my spouse's record, and I can get 50% of that. Now, that 50% is based on the PIA, they call it, the primary insurance amount, that full retirement age.

So that's the most that you can get as a spousal benefit. So you have to say, if claiming on my own record, what if I wait to 70? What does those cash flows look like? What's the break even? This is why the conversation can get a little complex. But that's where you really need to coordinate it and say, yep, let's do the spousal benefit. Now, if you do a spousal benefit and claim early, obviously your benefit is going to be reduction. I think you probably get that theme now.

Also, 10 years ago, I think it was 2015, 16, somewhere in there changed. You could file and suspend on your own record and do a spousal benefit. And there was ways of getting a lot more money out of the system. Can't do that anymore. So, one, in order for you to claim on a spousal benefit, your spouse will have to have claimed. And obviously, if they claim too early, they get a reduction in benefits.

And also, you're viewed as being claimed on either your own record or their record, whichever one is higher. But keep in mind, there's no advantage to waiting from full retirement age to 70 to do a spousal claim. So, it maxes out that the lower income spouse, we'll call them, at their full retirement age. So at that point, you might as well claim because there's no advantage to waiting, you know, as long as your spouse claims.

One thing I do see, too, is that sometimes folks will push off their, because they're afraid of longevity risk or just want the higher amount, hope they live long enough, that they both will try to wait to 70. Well, that works if you're both claiming on your own record. But if one spouse is claiming a spousal benefit, they have to wait until their higher earning spouse will call them claims at 70.

But as long as if they're at a past full retirement age, it doesn't pay for them to wait any longer. They're better off claiming because they're already at or past full retirement age. The other big issue as well is survivorship benefits. So with survivorship benefits, it does benefit the surviving spouse if the deceased spouse waits as long as possible. So sometimes you might see a lower earning spouse actually claim on their record, maybe early.

You know, that depends on people's life expectancy and just what they have fears of or what they want to do, or it could mean they need the cash flow. So, you know, and maybe they think one spouse is going to live longer than the other spouse, but then they might have the higher earning spouse delay until 70 because the longer they delay, the higher the survivorship benefit. So I'll say that again, the longer the deceased spouse waits to claim, the higher the survivorship benefit.

So if the deceased spouse waits to 70 to claim, that leaves more money for the survivor. Now the survivor doesn't do any gump. Now the survivor claims before age, before their fault for retirement age, they would get a discount. It's discounted. So it doesn't pay for it. But after full retirement age, there's no advantage to waiting. So sometimes you'll see the higher earning spouse wait to age 70, and then the surviving spouse claim at their full retirement age.

Now, this is where planning is helpful. Sometimes you're just caught in a spot, especially if someone passes early. But this is where if you kind of plan these things out, if you have the assets or the pension or the investments, whatever, and the spending plan so that you can wait, it can be helpful. Despite all the kind of drama around the cuts of Social Security administration and solvency, Social Security is a great asset. It still is a great benefit.

It's probably going to be there for a lot of people. And even if you're concerned it's not, you paid for it.

Take some time to plan and think about your claiming strategy as it relates to your life expectancy, as it relates to your investments and assets and pensions and cash flow. and then try to make an informed decision. Financial plan is about making better informed decisions. And if you do that with Social Security, you're probably going to have a healthier, a wealthier and a happier retirement. Don't forget to hit subscribe.

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