Social Security: High-Earning/Non-Working or Equal-Earning

[celiothrkn]

In terms of receiving Social Security checks, which married couple would be better off?

Couple 1: High-earning husband (let's say $200K/year) with non-working wife.
Couple 2: Equal-earning husband & wife (let's say $100K/year each).

In both of these scenarios, the overall household income is the same. Let's assume that both couples are the same age, that both couples' incomes remain constant over time, that both couples work the same number of years, and that both couples take SS with the same strategy (i.e. both at FRA). In other words, assume we are comparing apples-to-apples.

In the first scenario, the non-working spouse would only be able to receive 50% of her husband's. The main issue I foresee is that the husband's taxable maximum caps out at $128,400 (at least for 2018), so any earnings in excess of that basically doesn't count towards Social Security. Therefore, I have a feeling that the second couple would actually receive more in retirement. Any thoughts?

 

[DHK]

Are you preparing for an exam? Or are you working with a business owner who is employing his spouse and wants to equalize their compensation for social security benefit purposes?

My thoughts: Unless you are dealing with someone who CAN alter their benefit payments (business owners & spouses)... this is theoretical at best. I just work with people's situations as they are.

 

[celiothrkn]

The latter. I'm working with a scenario where it is possible to equalize, if that is indeed the better outcome.

 

[DHK]

Ah. Okay. There's probably very little difference IN retirement. Even if they divorced, she'd still get retirement benefits, as long as they were married for 10+ years.

I'd focus on survival benefits in retirement years.

If his benefit was $2,500 and hers was $2,000... she'll lose hers in favor of his, as it's the larger benefit. That would still be a huge loss of income. If benefits are equalized, it would get WORSE after the death of the first spouse, not better.

 

[JD AgentMan]

This may be too late as this post was a week ago, but while both are living, Couple 2 is definitely better off during retirement. This will be to the tune of around $800/month more in benefits versus Couple 1. However, as DHK referenced, the more equalized they are in their benefits, the worse the situation would be for survival benefits if one were to pass away. In essence, the surviving spouse would be taking a 50% reduction in benefit as opposed to a 33% reduction if it were Couple 1.