1. Confusing spousal benefits with survivor benefits.

Simply put, Social Security claiming optimization for couples is challenging, Levine says, given the complex interplay of various elements of the benefit calculation formula. A good foundation to begin planning, he suggests, is defining and emphasizing the difference between spousal and survivor benefits.

"A lot of people out there assume these are the same thing, while in fact they are very different," Levine says.

In the most basic terms, the spousal benefit is the benefit that a lower-earning spouse is entitled to collect while their higher-earning spouse is still alive, whereas the survivor benefit is an entirely different amount that kicks in once one spouse dies, either before or after claiming has begun.

Each benefit has its own calculation formula and rules.

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2. Assuming a non-working spouse is ineligible for spousal benefits.

In Levine's experience, many couples fail to realize that a spouse who lacks a work history of their own is still entitled to spousal benefits from Social Security, assuming the other spouse did earn a benefit.

Regardless of their work history, if a lower-earning or non-working spouse claims their spousal benefit at their own full retirement age, their spousal benefit equals 50% of the higher-earning worker spouse’s PIA.

Put differently, if they claim at their own FRA, the non-working spouse will get 50% of what the worker spouse would have received or will receive if they claim their retirement benefit at FRA.

"This is kind of a tricky dynamic to understand, but the main planning implication is that the higher earner's decision becomes much more important," Levine says. "This is the case because of the way survivor benefits are eventually calculated."

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3. Misunderstanding how claiming decisions affect spousal benefits.

Another important planning point Levine emphasizes is that the decision of when the higher-earning or sole-working spouse actually claims their benefit doesn't affect their own primary insurance amount. That is, claiming early will reduce this person's paid benefit amount, but that is a different matter than changing their PIA.

This is important because the higher earner's PIA is used to determine the lower-earning spouse's spousal benefit. According to Levine, it is rarely beneficial for a higher-earning spouse to claim early from a wealth maximization perspective, but the reason for avoiding doing so is not because that action will in itself reduce the lower earner’s spousal benefit.

"There’s a lot of nuance at play here, but it is actually often beneficial for the lower-earning spouse to go ahead and claim early, since they will later potentially be entitled to a survivor benefit that is higher than their spousal benefit," Levine says.

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4. Failing to optimize survivor benefits.

Levine says couples often assume that survivor benefits do not require much advanced planning to optimize, but this is not true.

"One interesting thing about survivor benefits is that the surviving spouse can essentially pick and choose between taking their own benefit and taking the survivor benefit," Levine says.

If a lower-earning spouse claims benefits while both members of the couple are alive, Social Security will pay this person the higher of their own benefit or their spousal benefit.

"But when we are talking about a survivor who is reaching 62, they can claim their own benefit and then wait to claim their survivor benefit until a later time," Levine explains. "Again, there is a lot of individual nuance, but this opens up planning opportunities."

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5. Failing to consider income replacement rates.

Levine says couples, like individuals, often overlook the fact that Social Security is designed as a progressive benefit, and while higher earners do get more back from Social Security in hard dollar terms, their income replacement percentage is often significantly lower.

To demonstrate the point, Levine uses a theoretical comparison of two workers. Person A has earned about $100,000 per year throughout their career, while Peron B earned $165,000 on average.

Person A can expect to get a monthly benefit of about $3,100, whereas Person B can expect to get roughly $3,600. In other words, Person A will see Social Security replace approximately 36% of their pre-retirement income, while Person B will have a replacement rate in the realm of 27%.

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6. Not making claiming decisions as a couple.

According to Levine, another common issue is a conviction among client couples that Social Security benefits are earned on an individual basis, and therefore claiming decisions should only consider the individual.

In reality the opposite is true, given the importance of spousal and survivor benefits. In fact, in most scenarios, it makes sense for the higher earner to delay their claiming until age 70, even if their own personal projected longevity is not great.

"Broadly speaking, in order for the higher earner’s decision to wait until 70 to make sense, it only takes one of the spouses to live until 82," Levine explains. "If you crunch the numbers, you can see that it doesn't require that the higher earner lives a long time after claiming in order for the breakeven calculation to fall in the couple’s favor."

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7. Thinking Social Security will disappear.

To help take emotion or misinformation out of the equation, Levine urges advisors to proactively address clients’ fears about Social Security solvency.

"Far too many Americans think the Social Security program is simply going to disappear at some point in the mid-2030s when the trust funds are depleted," Levine says. "In reality, the Social Security program will continue to function at that time, but benefits would have to be cut in the realm of 20% to 30%."

Levine suggests advisors and clients should be confident that the U.S. Congress will eventually act to put the program on a solvent footing for the long-term future.

"My gut sense is that practically no politician in America would ultimately be happy to having to explain to voters why they let Social Security collapse on their watch," Levine says. "That’s not a great message to have to bring to voters, especially older voters who show up at the polls in the greatest numbers."

(Image: Shutterstock) A Social Security application

Take this quiz: Do You Know These Social Security Facts for 2023?

While married Americans hold many misconceptions about optimal Social Security claiming strategies, there are several key misunderstandings that seem to be dogging couples in 2023, warns Jeff Levine, Buckingham Wealth Partners’ chief planning officer and Kitces.com’s chief financial planning nerd.

For example, as Levine shared during Buckingham’s latest financial planning webinar, many couples with uneven earnings histories errantly believe that their individual Social Security primary insurance amounts, or PIAs, will change depending on the date the higher earner claims.

There are factors that influence the higher earner’s PIA, but the claiming date of each member of the couple is not one of them. As Levine explained, the higher earner’s PIA is simply the sum of three separate percentages of certain portions of that worker’s average indexed monthly earnings, or AIME.

“It is critical for couples to understand that, whether the higher-earning worker claims early at 62, or claims at their full retirement age or beyond, this decision does not actually impact the higher earner’s PIA,” Levine stresses. “This is important to understand because the lower earner’s spousal benefit is going to be set at 50% of the higher earner’s PIA.”

According to Levine, this dynamic is a major point of confusion for many couples.

“It is so important to understand the fact that the higher earner’s PIA doesn’t change depending on when they claim. It is calculated when they turn 62,” Levine says. “When it comes to maximizing a couple’s Social Security income, what tends to matter more is when the lower earner spouse claims, and whether that is at their full retirement age or not.”

See the slideshow for other top insights from Levine regarding the important ways couples can make mistakes in the claiming process, potentially robbing themselves of tens or even hundreds of thousands of dollars in lifetime wealth potential.

(Pictured: Jeffrey Levine)