Social Security commonly serves as a financial lifeline for singles and married couples during retirement. And couples often benefit from the program even more so because Social Security pays spousal benefits to people who don't qualify for benefits based on their own earnings histories.
For example, say there's a couple where one spouse worked and the other didn't. Once the working spouse claims Social Security, the non-working spouse can sign up for spousal benefits equaling up to half the amount the working spouse collects.
Furthermore, in situations where one spouse who collects Social Security passes away before their partner, the surviving spouse is entitled to survivors benefits from Social Security. Those are equal to 100% of the deceased spouse's former monthly benefit (provided the surviving spouse doesn't file early).
But new research from Lafayette College reveals that spousal benefits aren't as helpful to couples as survivors benefits. And it also begs the question — should spousal benefits be reduced in favor of larger survivors benefits?
Addressing longevity risk
One of the biggest challenges couples (and singles) face in the course of retirement planning is longevity. It's difficult to predict how long a given couple will live and how much income they'll need in light of that.
Social Security protects against that, to some degree, by paying out monthly benefits for life. Even once recipients pass away, their surviving spouses are entitled to survivors benefits for the rest of their 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 to be reduced modestly and survivors benefits were to increase. This especially applies to single-earner couples where only one person earned enough to qualify for Social Security based on their own wages.
From a cost perspective, the authors behind the research say that shrinking spousal benefits could free up enough money to increase survivors benefits. That's important because as it is, Social Security is incredibly cash-strapped, to the point where universal benefit cuts are a distinct possibility in the not-so-distant future.
Read up on strategies for couples
If you're married and headed toward retirement, it's important to read up on the different benefits you might be entitled to under Social Security. It's also important to come up with a filing strategy that's most helpful to you as a couple.
Of course, that strategy is apt to hinge largely on whether both you and your spouse worked or not. If only one of you is entitled to Social Security benefits and the other is reliant on spousal benefits, you're in a different boat than a couple where both people worked and can claim benefits based on their respective wage histories.
Either way, be sure to spend some time figuring out when to sign up for benefits, especially in a situation where one spouse is a much higher earner and the lower earner is likely to live longer. In that scenario, you might consider delaying your filing to leave your spouse the most generous survivors benefit possible — especially since there are no actual plans to increase those benefits at this stage of the game.
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