When it comes to claiming Social Security, the decision of claiming now or later shouldn't be based on maximizing an individual's forward-looking payout in isolation. Consider how Social Security can be used, as part of the overall investment plan, to reach the best outcome for the family.

We suggest a dynamic claiming approach that enables households to mitigate longevity risk and sequence risk while also maximizing the expected value of their benefits. This can be done by delaying filing until the first of 1) reaching age 70 when delayed retirement credits are at their maximum, or 2) experiencing a bear market at which point Social Security could be turned on to reduce spending out of the investment portfolio. For an even more dynamic approach, households can stage when each spouse claims Social Security to maximize the overall value of the longevity hedge while also protecting their liquid financial assets early in retirement. In order to do so effectively, it's important to understand how Social Security's spousal benefits are affected.

What is the spousal benefit? Social Security retirement benefits aren't just for retirees. Spouses of retired workers can also qualify for a benefit, known as the spousal benefit. Even if one spouse hasn't contributed to Social Security they'll still be eligible for a portion of the working spouse's retirement benefit. If both spouses worked and are eligible for their own benefit, the lower earning spouse will receive the greater of his or her own benefit, or half of the higher-earning spouse's benefit at their Full Retirement Age (FRA).

Qualifications for spousal benefits are determined by past and present marital status, and the amount that is received depends on their own earnings record, their spouse's earnings record and the age at which the spouse begins collecting spousal benefits.

Before claiming your benefits, consider the following:

* Spousal benefits do not include any delayed retirement credits the higher earning spouse may receive.

* Benefits paid to you as a spouse will not decrease your spouse's own retirement benefit.

* The amount of money a spouse collects in spousal benefits is reduced if claimed early – between age 62 and their FRA.

* Spousal benefits aren't just for current spouses, former spouses may be eligible for benefits, too!

* Generally speaking, retirees can't file only for spousal benefits to earn delayed retirement credits on their own benefit; however, if you were born before 2 January 1954 you may be able to file a restricted application.1

Coordinate claiming strategies

Determining the optimal time to file for Social Security is a complex undertaking. There are many factors that go into the equation such as age, life expectancy, employment status, etc. What complicates the decision even more is bringing spousal benefits into the mix. Social Security can provide a unique combination of benefits including guaranteed income, inflation protection, and a hedge against longevity risk. But to determine how Social Security can be used as part of the overall financial plan to meet the family's needs, spousal benefits must be taken into consideration. The timing of each spouses' filing can bolster, or detract from, the household's combined benefit. Be sure to coordinate claiming strategies prior to filing to make the most of Social Security for you and your spouse.

Author:

Ainsley Carbone, Total Wealth Strategist Americas, UBS Financial Services Inc. (UBS FS)

1Those who were born before 2 January 1954 and are already at FRA are permitted to file a restricted application. This allows one spouse to apply for only the spousal benefit while delaying their own retirement benefit (to earn delayed retirement credits). This would be beneficial for someone whose benefit would increase enough—as a result of the delayed retirement credits—to surpass 50% of their spouse's benefit. It's important to note that restricted applications are no longer permitted for those who were born after 2 January 1954.

This report has been prepared by UBS Financial Services Inc. (UBS FS). Please see important disclaimers and disclosures at the end of the document.

Appendix

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