Social Security Delays Help All Couples But High-Earning Couples The Most – Center for Retirement Research

The longer the husband delays his Social Security retirement benefits, the larger the check his wife will receive when she dies. And chances are he’ll die first, so that delay decision leaves him with more income every month into his 80s or 90s.

This all-too-common marriage arrangement — the husband earning more than the younger working wife — is the focus of a new study that analyzes how much these couples receive in Social Security benefits under the program’s rules. This depends not only on how long the husband waits to sign up for his benefits, which increases his monthly paycheck, but also how long he will live and collect them.

Life expectancy differences are significant in the earnings of retired workers in this study compared to educated, high-income and less-educated, low-income Americans. When high-earning spouses reach 62, they typically live several years longer than low-earning spouses and can collect Social Security checks during most of their retirement years.

Social Security rules treat all couples the same and deferred benefits benefit everyone. But if the high-earning husband raises them from 62 to 66, for example, the present value of the couple’s total future benefits will increase by about 9 percent, the researchers estimate. And because of his longevity, the benefits are concentrated in his monthly paychecks, rather than the survivor benefiting the spouse after his death.

When husbands in low-income couples delay reaching 66, the present value of their future benefits also increases but by less — about 7 percent. Since she has a short life expectancy, the greatest benefit will be in the benefit of the surviving woman.

In the real world, however, low-income spouses do not take full advantage of the financial benefits of delaying because they are less likely to wait until 66 to sign up for Social Security.

What this study suggests is that the large reward in claim delays that goes to high-wage workers — because of their longevity — effectively offsets some of the progress built into the Social Security formula. That formula was designed to give low-income workers a larger percentage of their past earnings in each benefit check after retirement.

Disadvantaged men, who say they are relatively early, “sacrifice an important benefit by delaying in the form of higher survivor benefits that their wives receive,” the researchers said.

Declining marriage rates in the US also work against disadvantaged women. With their marriage rates down, many working women are unable to access the “protective role of survivor benefits” that help widows, researchers say.

This study requires a deep dive into US Social Security Administration data to understand the impact of the different motivations facing men and women built into the system. For example, researchers found that married men with much younger wives were late than men with wives who were about the same age. The logic behind his decision is that having a much younger wife is an extra incentive to increase his retirement income if he dies first.

Social Security laws create a different incentive for wives. Wives who earn less than their husbands start their career benefits earlier because it will not affect the size of the survivor’s maximum benefit later. Single women are often delayed, however, because they cannot rely on survivor benefits.

But the bottom line is that the benefit of delaying Social Security goes to high-income couples.

Reading this learn by Irena Dushi, Leora Friedberg, and Anthony Webb, see “Which Families Benefit from Delayed Surprises?”

The research reported here was conducted in accordance with a grant from the US Social Security Administration (SSA) funded as part of the Retirement and Disability Research Consortium. The views and conclusions expressed are solely those of the authors and do not necessarily represent the views or policy of SSA or any agency of the Federal Government. Neither the United States government nor any of its agencies, nor any of its employees, makes any warranty, express or implied, or assumes any legal responsibility or liability for the accuracy, completeness, or usefulness of the contents of this report. Reference herein to any particular commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not imply endorsement, recommendation or favor by the United States Government or any agency thereof.