When deciding whether or not to get married the impact of a change in marital status on social security benefits could be financially significant. The effect could be as much as $100,000 or more in lifetime benefits if a couple were married versus single and it could also materially affect survivor benefits.
For example, I completed a social security income maximization plan for a couple who had been living together for the past 20 years and neither had been previously married. Since they only lived together and never got married, as far as social security is concerned, they are both considered single for benefit purposes.
This couple met with me in order to find out how much more, if any, their social security benefits would be as a married couple versus two single filers. Furthermore, they wanted to know if the timing of their potential marriage would affect their social security benefits.
In their particular case the man was age 67, had a near maximum social security benefit and was still working. The woman was age 62, retired and had a social security benefit approximately equal to 70% of his benefit amount. After gathering all the necessary financial and non-financial data I ran multiple possible scenarios as a married couple and also as two single filers.
Two key factors in their particular situation were their differences in age and benefit amounts. I assumed, based on their health status and family history, that they would both likely reach normal life expectancy. However, because of their 5 year age difference and the fact that she is a women we would, statistically speaking, expect that she would likely outlive him by about 7-8 years. Given that likely possibility, the need to consider survivor benefits for the women was very important in this case as we would expect that she would eventually be living on only one social security check as a widow for those 7-8 years. Therefore, maximizing that survivor check would be critical.
The other important consideration would be the difference in lifetime benefits as they live their retirement years as a single couple versus a married couple. As a married couple there are a number of strategies available to co-ordinate spousal benefits, thereby providing additional lifetime benefits, that would not be available if they remained single in retirement.
So, are these differences in social security benefits for this single couples versus married couples material? My analysis showed that as a married couple they would be eligible to receive an additional $160,000 in lifetime benefits as compared to retiring as a single couple! If they exceeded normal life expectancy this additional benefit would be even more pronounced.
Additionally, the impact on the survivor benefit for the woman was also significant. As a married couple her expected survivor benefit, assuming he lived to normal life expectancy, would provide her with over $800/month in additional benefits. This is because his benefit amount was higher than hers and as a spouse she would be eligible to switch to his higher benefit, instead of simply retaining her own lower benefit if he predeceased her. Since she is expected to outlive him by 7-8 years this is a material benefit to her especially since she will be going from living off of both of their social security checks to just her survivor check.
It is also important to note that since women live longer than men they are more likely to need and utilize long-term care services, whether in a nursing home or at home. Receiving additional social security benefits later in retirement can help to defray some of these and other health care costs.
Social security benefits in and of themselves are clearly not a sufficient reason for a single couple to make the decision to get married. However, when couples do their retirement income planning it may be prudent to also look at the implications on social security benefits and other financial assets which are impacted by marital status. The disparity in benefits could exceed tens of thousands or even hundreds of thousands of dollars. For many couples, this could have a material impact on their ability to finance their retirement.
Ash Ahluwalia, NSSA, CCSCA, MBA