Social Security Strategies Look at Angle for Same-Sex Couples

Prudential Financial Inc. has updated its 2012 edition of “Innovative Strategies to Help Maximize Social Security Benefits.”  

The guide has gone through a couple of editions, says James Mahaney, author of the paper and vice president, Strategic Initiatives, at Prudential. This last update brings in the impact of the recent Supreme Court decision that lays the groundwork for same-sex married couples to collect spousal benefits “It serves as reminder that all married couples should look at their benefits to see how to maximize Social Security,” he tells PLANADVISER.  

Unlike defined benefit (DB) plans, Mahaney says, that required people to start taking Social Security benefits right away, when the pension benefits began, “401(k) plans offer a great deal of flexibility, allowing people to draw income in ways that they can coordinate with their Social Security benefits.”

Most important for plan sponsors, Mahaney says, is to tell same-sex couples who are married or considering marriage to review their options as a spouse.

“There are two effective yet often overlooked strategies currently available for married couples, which now includes same-sex married couples,” Mahaney says. The file and suspend method allows the higher-earning spouse to claim benefits at full retirement age and voluntarily suspend the receipt of those benefits until a later time; this provides the lower earning spouse the opportunity to claim and immediately receive spousal benefits.

The second strategy, filing a restricted application, allows an individual at full retirement age to receive his/her full spousal benefit first, while delaying the receipt of his/her own worker benefit, thus allowing it to grow larger through Delayed Retirement Credits.

Mahaney noted that the goal of the restricted application filing is to “step up” into what is usually a higher paying worker’s benefit at age 70. Other key points for individuals in married relationships include:

Regardless of which spouse dies first, the smaller benefit currently being paid out between the two spouses is eliminated while the larger benefit continues.

Timing of when to claim benefits is a key decision; a financial professional can help individuals understand the options available when putting a claiming strategy in place.

The latest edition also includes updated key figures that impact how benefits are paid in 2015, explains how Social Security income receives preferential tax treatment during retirement, as well as provides descriptions and examples as to how married couples, divorced persons and widow and widowers can incorporate strategies to help maximize their potential Social Security benefits.

“It’s often a matter of people don’t know what they don’t know,” Mahaney says. On the cusp of retirement, whether divorced or widowed or married, people need to educate themselves about the options and the best ways to integrate Social Security benefits with a 401(k) plan or a defined benefit plan—“and do it as a couple,” he stresses.

“Innovative Strategies to Help Maximize Social Security Benefits” can be downloaded from Prudential’s website. The paper is also available in Spanish.