Delaying Social Security Helps All Couples but High-income Couples More
The longer a husband delays his Social Security retirement benefits, the larger the check his wife will get when he dies. And odds are that he’ll die first, so that decision to delay will leave her with more income every month into her 80s or even 90s.
This fairly common marriage arrangement – a husband who earns more than a younger working wife – is the focus of new research analyzing how much these couples receive in total Social Security benefits under the program’s rules. This hinges not only on how long a husband waits to sign up for his benefits, which increases his monthly check, but also on how long he will live and collect them.
The disparity in lifespans is crucial to the amounts that retired workers are receiving in this study comparing more educated, higher-income Americans with less-educated, lower-earners. When high-income husbands make it to 62, they generally live several years longer than the lower earners and can potentially collect more Social Security checks during more years of retirement.
Social Security’s rules treat all couples the same and delaying benefits helps everyone. But when a high-income husband delays from 62 to 66, for example, the current value of the couple’s total future benefits will increase about 9 percent, the researchers estimate. And because of his longevity, the gains are concentrated in his monthly checks, rather than the survivor benefit a wife receives after he dies.
When husbands in lower-income couples delay to 66, the current value of their future benefits also increases but by less – about 7 percent. Since he has a shorter lifespan, more of the gain will be in his wife’s survivor benefit.
In the real world, however, lower-income husbands do not even take full advantage of the financial gains from delaying because they are very unlikely to wait until 66 to sign up for Social Security.
The implication of this research is that the larger reward to delaying claiming that goes to higher-earning workers – due to their longer lifespans – effectively erodes some of the progressivity that was built into Social Security’s formula. That formula was designed to give lower-income workers a larger percentage of their past earnings in each benefit check after they retire.
Disadvantaged men, who claim relatively early, “forgo an important gain from delaying in the form of higher survivor benefits that would accrue to their wives,” the researchers said.
The decline in U.S. marriage rates also works against disadvantaged women. Since their marriage rate has fallen, many working women lack access to “the protective role of the survivor benefit” that helps widows, the researchers said.
This study required a deep dive into U.S. Social Security Administration data to understand the impact of the different incentives facing men and women that are built into the system. For example, the researchers found that married men with much younger wives claim later than husbands whose wives are roughly the same age. The logic behind his decision is that having a much younger wife is extra incentive to increase her retirement income if he dies first.
Social Security’s rules create a different incentive for wives. Wives who earn less than their husbands start the benefits they’ve earned from their own careers fairly early because it won’t have any bearing on the size of the larger survivor benefit they’ll get later. Single women tend to delay, however, because they can’t count on a survivor benefit.
But the bottom line is that the advantage of delaying Social Security goes to higher-income couples.
To read this study by Irena Dushi, Leora Friedberg, and Anthony Webb, see “Which Households Benefit from Delayed Claiming?”
The research reported herein was performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement and Disability Research Consortium. The opinions and conclusions expressed are solely those of the authors and do not represent the opinions or policy of SSA or any agency of the Federal Government. Neither the United States Government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report. Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.
A cautionary tale of what happens when you target two goals with a single policy instrument. The Delayed Retirement Credit was increased not only for reasons of fairness, but also to incent work at older ages. It is unclear how many of those who delay retirement would have done so anyway, absent the incentive. But the DRC is undoubtedly better than fair to the healthy and wealthy folk who actually delay, and that reduces the size of the pot for everyone else.
As the female breadwinner in my family of four, for decades, I took early SSA benefits after pandemic company downsizing let the over 60-aged employees go first. This was the widespread situation with women in the tech sector (especially in sales). Perhaps corporations get better benefit plans employing younger individuals (at lower pay), but thankfully all those hard years of working hard & sacrificing vacation time are paying off for me in retirement.
As claim ages diverge, adverse selection is becoming a serious problem for the Social Security system. But the answer to the question of which socioeconomic groups gain and which groups lose depends on your starting point. Relative to a baseline of everyone claiming at age 65, a mischievous actuary might argue that Black men without a high school education, a high mortality group, impose costs on the program by claiming early and cashing in before they die.