SAN FRANCISCO – There's nothing simple about deciding when to take your Social Security benefit, and the figuring gets more complex if you're a married couple trying to sort out which spouse should take benefits when.
If both spouses have earnings from a job, they'll both likely receive a monthly benefit, and a lower-earning spouse is often eligible for a spousal benefit up to one-half of the higher-earning spouse's benefit.
But it's important to consider the timing of who collects when, especially when there is a large difference in incomes between spouses.
For instance, say a wife earns less over her career than her husband, and she decides to take her own work-based benefit early, at age 62.
Now that she's receiving benefits, as soon as her husband opts to retire, the Social Security Administration will determine her spousal benefit — up to half of the monthly sum he'd receive at his full retirement age — and will beef up the wife's monthly sum to make up any difference.
But her spousal benefit is based in part on her age at the time her husband retires. If she's 63 when her husband retires she's eligible for a smaller portion of his benefit than if she's 65 when he retires.
"The tricky part of this is when you have a spouse who's going to get spousal benefits, that spousal benefit is affected by the age of the spouse when the [higher earner] retires," said John Sestina, a certified financial planner and president of John Sestina & Co., in Columbus, Ohio.
Say the lower-earning spouse is a woman and that her full retirement age, according to Social Security rules, is 66, but she retires at 62. Her spousal benefit will be just 35% of her husband's benefit at his full retirement age (no matter when he actually retires).
But if she waits until her full retirement age of 66, she's eligible to collect 50% of his benefit. If her husband's monthly benefit at full retirement age is $1,000, that's a choice between $350 a month at 62 and $500 at 66.
Note that the degree to which your spousal benefit is reduced varies depending on your full retirement age. For instance, those with a full retirement age of 67 who retire at 62 collect 32.5% of the higher-earner's monthly benefit.
Work plus spousal benefits
Here's an example of how the SSA figures the spousal benefit for a lower-earning spouse who's already collecting work-based benefits: Based on her work earnings, a hypothetical woman is eligible for $400 a month at her full retirement age of 67, but she takes her benefits at age 62, so she gets a reduced amount of $280.
The next year, when she's 63, her husband retires and he's eligible for a monthly benefit of $1,000 at his full retirement age (it doesn't matter what age he is when he retires). The wife is entitled to a maximum of half of that at her full retirement age, or $500.
But she's only 63, so she's entitled to just 35% of his benefit, or 35% of $1,000, which is $350.
That means she'll get $70 plus her $280 work-based benefit, for a total of $350 a month, said Dorothy Clark, a spokeswoman with the SSA.
If the lower earner already receives work-based benefits when the higher-earner retires, the lower earner can't opt to delay the spousal benefit to a later age to increase the monthly sum — the Social Security Administration will automatically start figuring in the spousal benefit.
But those who are not yet receiving benefits can choose to delay both their work-based benefit and their spousal benefit, even after the higher-earner starts collecting a monthly check.
And, because the spousal benefit is based on whatever the higher earner's benefit would be at full retirement age, any increased monthly benefit from the higher earner's delayed retirement doesn't change the spousal benefit.
As always when figuring Social Security benefits, realize that if you retire before your full retirement age and then return to the work force, any earnings over a certain threshold will cost you $1 for every $2 earned, until you hit your full retirement age. The same is true for spousal benefits.
Take one spouse's benefit early?
For some couples, the decision of when to collect Social Security is, in a sense, all too easy: They'll need their Social Security income as soon as possible.
For those who can afford to wait, some financial planners suggest the lower-earner take the benefit as early as possible, at 62, while the higher-earner delay until full retirement age or longer, to get the highest monthly benefit possible based on those higher earnings.
When one spouse passes away, the surviving spouse can choose the highest monthly amount.
"The survivor gets to keep the bigger of the two checks, regardless of whether a man or woman," said Michael Branham, a certified financial planner with Cornerstone Wealth Advisors, in Edina, Minn.
The lower-earning spouse could also delay retirement to collect a higher monthly benefit, but it's less likely both spouses will live long enough to make delaying benefits pay off, Branham said.
"If you have two spouses where they have a strong history of longevity in their families, that might make sense," he said. "But I think there's not enough data to suggest that's the norm at this point."
Don't forget that if a spouse has a pension from a government job not covered by Social Security, the spousal benefit may be reduced, said Michael Kitces, a certified financial planner with Pinnacle Advisory Group in Columbia, Md.
"It might turn out that your benefits are not as high as you thought they were," he said.
Which funds when?
Obviously, your Social Security benefit decisions are based in part on your other retirement assets. For instance, do you want to tap stock-based or other retirement plans first, or wait?
"If you think the market's rallied a lot and is due for a decline, that would tend to lead you down the road of selling some assets," Kitces said.
"If you think the market has a lot of rally left to go, that would lead you down the road of taking Social Security and letting your assets remain invested. Everyone's going to have their own views and opinions about where the market is going," he said.
No matter your situation, don't let fear of reduced Social Security benefits drive you to make bad choices, Kitces said.
"It's important to not lose focus. The main goal here is to generate income to live on," he said.
"The classic problem you see that should be absolutely avoided: 'Since I'm trying so hard not to start my spouse's benefit for a few years, I'm going to run-up balances on my credit cards or borrow extra money out of my house to cover my bills until my Social Security benefits can be higher.' When you factor in the cost of borrowing, you do not end up ahead."