One of the biggest challenges that a married couple with a large age difference will face is how to build a retirement that is designed to make sure both spouses are taken care of for the rest of their life.

This is especially important for the younger spouse because, depending on their age, they could have many more years of life expectancy to cover in retirement compared to their older spouse.

This problem can also be compounded further given the fact that the wife is often the younger spouse, and that women live on average 4 to 5 years longer than men.

So with a younger wife a 10 year spousal age difference could lead to a planning time horizon of 14 to 15 years longer at a minimum.

Generating sufficient lifetime income in retirement is very important for a couple. But the increased planning time horizon due to the large age difference means that their existing portfolio must last longer.

Either returns must be stronger, withdrawals lower, account levels higher, or the time horizon is cut shorter due to an untimely event. 

Annuities could offer some help since they provide lifetime income guarantees, even on a joint couple’s life.

But the problem arises that the joint income guarantee is often based on the younger spouse’s age.

With a 10+ year difference in age, this could cause the payout guarantee on the annuity to be woefully low.

A different approach is needed.

Leverage Social Security Benefits To Help The Younger Spouse

One of the best options is to take full advantage of Social Security benefits that are available. For couples with large age differences perhaps the best strategy is for the oldest spouse to defer drawing Social Security until they are age 70.

By deferring to age 70 the oldest spouse’s benefit will reach it’s maximum.

For every year beyond a person’s full retirement age that they delay drawing Social Security, their benefit will increase by 8% up until the age of 70. At that point it won’t increase anymore for further delaying. So they shouldn’t delay any longer after that.

How This Benefits The Younger Spouse

By delaying their benefit until age 70, they are actually increasing the survivor’s benefit for the younger spouse.

Generally speaking, each spouse will have a Social Security benefit. Just because one spouse may not be old enough to draw benefits yet doesn’t mean they don’t have their own benefit assuming they have worked long enough and paid taxes into the system.

When one spouse dies, the lesser of their two Social Security benefits goes away. And the larger benefit remains.

This means the surviving spouse will be entitled to the larger benefit for the rest of their life.

In the case of a couple with a large age difference, if the younger spouse is the survivor they may not yet have reached the age when they can access these Social Security benefits. But once they reach that age the benefit will be there for them.

So by delaying their Social Security benefit up to age 70, the older spouses is creating a benefit that will pay well beyond their life expectancy, statistically speaking.

This can be a huge benefit for the younger spouse.

An example may help.

Made Easy Example #1:

Jim is 69, and Pam is 54. They are both retired. Jim has been delaying his Social Security benefit and will not begin drawing until he has maxed it out at age 70. Once he reaches 70 he begins drawing a Social Security benefit of $3,100. Since his full Social Security retirement age was 67 and he delayed 3 years, he grew his benefit by 24% (8% per year). Instead of receiving $2,500/month it increased 24% to $3,100/month. Since Pam’s own Social Security benefit would not be this great, she has benefited in a huge way. Because she will receive this larger Social Security benefit for the rest of her life even if Jim dies, as opposed to only receiving the $2,500/month. Pam just has to reach the right age to be able to claim survivor’s benefits.

How Old Do I Have To Be To Receive Social Security Survivor’s Benefits?

Only in limited situations can survivors receive benefits before the age of 60, this would include cases of disability or caring for a disabled child.

Putting these aside, the survivor’s benefit will not be available until age 60.

But if the surviving spouse draws survivor benefits earlier than their full retirement age, which could be between 66 and 67 depending on the year they were born, they will receive a reduced amount of their late spouse’s Social Security benefit.

If they draw survivor’s benefits at age 60, they will experience a 28.5% reduction in what their late spouse was drawing.

But if the surviving spouse waits until their full retirement age, they will be entitled to 100% of their late spouse’s benefit.

Made Easy Example #2:

Jim is 70 and begins drawing his maxed out Social Security benefit of $3,100. Pam is now 55. However, the next year Jim passes away. Pam is 56 at this point. Jim’s benefit stops because Pam is not yet eligible for survivor’s benefits due to her age. If she begins drawing survivor’s benefit at age 60 she will take a 28.5% reduction in what Jim was receiving, or $2,216.50. If she waits until her full retirement age of 67 she will draw the full benefit of $3,100.

And every month that she waits in between age 60 and her full retirement, the benefit will get slightly bigger until it becomes the full benefit of $3,100 at her full retirement age.

Social Security Survivor Benefits Are Separate From The Individual’s Benefit

One key factor to keep in mind is that survivor’s benefits are separate from an individual’s benefit. You can’t add them up together and take the combined amount. But you can switch from claiming one to claiming the other to maximize your income benefits.

What this means is that the survivor’s benefit could become available to a widow(er) at age 60. And the widow(er)’s own Social Security benefit could become available at age 62.

The widow(er) could claim the survivor benefit at age 60. Then they could switch to their own benefit at age 62 if it was greater.

Of they could claim the survivor benefit at age 60 and switch to their own benefit at a later date, say 66 or 67, effectively letting their own individual benefit grow over time. Assuming the switch allowed them to increase their income benefit.

For a spouse with a small individual benefit it may make sense to delay the survivor benefit, but when they turn 62 begin drawing their own small Social Security benefit. And then they could switch to the larger survivor benefit at their full retirement age, somewhere between 66 or 67. This way they would have some income coming in from Social Security starting at 62, and it wouldn’t be causing them to take a permanently reduced survivor benefit as long as they wait until their full Social Security retirement age.

Made Easy Example #3:

Jim died at age 71 drawing a $3,100/month Social Security benefit. Pam is only 56. In 4 years she’ll be eligible for a reduced survivor benefit of $2,216.50/month. But she doesn’t want to permanently reduce that benefit by drawing at 60. She wants to wait until she reaches her full retirement age of 67. But in the meantime once she reaches age 62 she will be eligible for her own Social Security benefit to draw from. And when she reaches her full retirement age she wants to switch to the higher survivor benefit of $3,100/month.

Conclusion – Applying What We’ve Learned

With married couples with a large age difference, one of the best ways to help out the younger spouse is to maximize their Social Security benefit. Often times this will be by delaying the oldest spouse’s benefit until age 70. Then building a retirement plan that sets aside funds that a widow(er) could draw from as a bridge to get them to the appropriate age for claiming survivors benefits.

Every situation is different, and the above paragraph almost assumes the oldest spouse has the largest personal Social Security benefit. If the younger spouse had the larger benefit the strategy would be different. Perhaps the younger surviving spouse would claim survivor benefits at age 60 and let their personal Social Security benefit defer to a bigger amount at a later date.

Regardless, special care needs to be taken when planning for couples with large age differences. And using the Social Security benefits they are entitled to is a good place to start.

Chris Hammond

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