Get the most from Social Security

By Kiplinger's Personal Finance Magazine

As married couples enter their 60s, they face an important and difficult decision: when to start collecting Social Security.

The traditional thinking is that husbands should start taking benefits early while their wives wait to claim higher benefits later. Because women tend to live longer than men, the presumption is that women are more likely to reach the "break-even age," the point when the total value of those higher benefits exceeds the total value of lower early-retirement benefits.

But a new study tosses that logic on its head. Married women generally are better off claiming benefits at the early-retirement age of 62, and their husbands generally should wait until 69, according to Boston College's Center for Retirement Research. The study was conducted by center director Alicia Munnell and senior research associate Mauricio Soto.

The authors set out to determine how married couples can collect the most benefits during their years together and the rest of the surviving spouse's life. A married woman can collect Social Security based on her own earnings starting at 62, or she can claim "spousal" benefits based on her husband's earnings. Spousal benefits are equal to 50% of the husband's benefits.

In either case, her benefits will be reduced if she claims before she reaches full retirement age, but her decision will not affect her survivor benefits, which she can receive after her husband dies.

A key to maximizing a couple's benefits is to increase the value of the survivor benefits, the study says. The surviving spouse is eligible to receive 100% of the higher-earning spouse's benefits. If a husband collects at 62, his benefits, and his wife's survivor benefits, will be reduced by 25%. If he waits until his full retirement age of 66, his widow will get his full benefits. Each year he delays, until age 70, boosts his benefits and the survivor benefits by 8%.

If her benefits are cut, why would a wife claim early? Because her reduced benefits are only temporary, the study's authors say. By collecting early, she increases the household income and then qualifies for higher survivor benefits.

Coordinate your start dates

The authors calculated the optimal ages to claim benefits based on various age differences and relative earnings. If a wife's earnings produce benefits that are 40% or more of her husband's, she should claim at 62, because her own benefits are relatively high. He should claim at 69 to maximize the survivor benefits.

If a woman's relative earnings are equal to 30% to 40% of her husband's benefits, the couple's decision is based in part on their age difference. If they're the same age, the husband should hold off until 67, and the wife should wait until 66. The couple will spend most of the retirement period together, during which they'll enjoy 100% of both his and her benefits. If the wife is three to six years younger, she should take her benefits at 62 and he should claim his at 69 to maximize survivor benefits.

Finally, wives with the lowest relative earnings should collect spousal benefits (instead of claiming their own benefits), which they can do only after their husbands retire. If there's an age difference of five or six years, the husband should wait until 68 and the wife should collect at 62. If they're the same age, they should both collect at 66; the spousal benefits are less important because they'll spend most of their retirement together.

To see where you stand, visit the Web site of the Journal of Financial Planning to read the study.

This article was reported and written by Kathryn A. Walson for Kiplinger's Personal Finance Magazine.

Published Dec. 5, 2007