One Spouse Retired Early and The Other Kept Working. Here’s the Social Security Trap
It’s common for one spouse to retire a little sooner than the other. One may get burned out, incur a health condition or need more time to help take care of grandchildren, while the other continues to work to preserve income, build the nest egg and save on health insurance.
But that means the couple should think carefully about how they will receive their Social Security benefits. The retired spouse may not want to rush to claim Social Security right away, especially if they are only age 62. These are the key details to consider for a recently retired spouse who is considering Social Security.
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Why staggered retirement can create a claiming trap
If you retire at 70, it usually makes sense to claim Social Security right away, since waiting longer won’t lead to higher benefits. However, it’s more complicated if one spouse retires at age 62. Not only does accessing Social Security at 62 result in the lowest possible benefit, but since one spouse is still working, a higher percentage of that benefit may be eligible for withholding and taxation.
Social Security has a detailed chart that shows how much you would lose in monthly benefits if you claim it as soon as you turn 62. Locking in smaller paychecks even when a household still has one income source can negatively affect long-term financial planning, especially if the couple lives into their 90s.
While it can make sense to claim in this scenario for some people, claiming Social Security right after retiring shouldn’t be the default option. The working spouse’s income and savings may be enough to delay Social Security for multiple years and secure higher benefits in the process.
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The spousal benefit wrinkle couples can miss
The spouse with a higher income may continue to work, giving the other spouse the flexibility to retire. However, the retired spouse shouldn’t necessarily rush to claim Social Security early, especially if they don’t have a deep work history.
It’s important to consider the spousal benefit. If you wait to claim Social Security until full retirement age, you can receive up to 50% of your spouse’s full benefit. If you claim early, you won’t receive as much: The benefit could be as little as 32.5% if you claim as early as age 62. The more you delay until your full retirement age, the larger your spousal benefit.
Discuss your finances before taking out Social Security
The time each spouse claims Social Security is a significant financial decision that will impact both of them. That’s why spouses should review their finances, assess their estimated benefits and map out when they will tap into Social Security.
You can log into your “My Social Security” account via the Social Security Administration's website to check full retirement ages and see your projected benefit. Couples may also want to seek advice from financial planners and tax professionals if they need more clarity on the right move to make.