More About Social Security and Estate Planning

On Behalf of | Feb 9, 2022 | Elder law, estate and tax planning, social security, Social Security benefits and estate planning


Last week in this Geyer Law blog, Cara Chittenden discussed the important role Social Security benefits play when it comes to making estate planning and gift planning decisions. As we often work in cooperation with many of our clients’ tax and financial planning advisors, we wanted to examine in detail a social security/tax planning strategy that often comes under consideration called the Social Security Split…

By way of quick review…

  • Social Security retirement benefits are generally available to individuals with at least 40 earned credits, which is the equivalent of 10 years of employment. Based on an individual’s earnings record, the Social Security Administration (SSA) calculates a “primary insurance amount” (PIA) which reflects the retirement benefits available at full retirement age (FRA).
  • Individuals may choose to collect retirement benefits as early as age 62 or as late as age 70. For those who elect to start benefits before full retirement age, a permanent reduction applies depending on how early benefits are collected.
  • For individuals who wait to collect Social Security retirement benefits, a delayed retirement credit applies. For individuals born in 1943 or later, the delayed retirement credit works out to two-thirds of one percent for each month deferred beyond FRA (an eight percent annual benefit increase), up to age 70. So, for an individual with an FRA of age 67, the FRA monthly benefit could be permanently increased by 24 percent if they waited until age 70 to collect.

In a “Social Security split”, the lower-earning spouse takes benefits as early as age 62, while the higher-earning spouse postpones filing for Social Security until age 70 in order to maximize his or her benefit. The idea?

  • Over time, the higher earner’s increases will be worth more than the lower earner’s increases would have been.
  • If there is a really big disparity between the two spouses’ benefits, the one spouse with the lower benefits can first claim based on his or her own earnings record and then apply for spousal benefits later when the higher-benefit spouse starts to collect.

Interestingly, not all financial advisors agree that a “split” is such a good idea. In fact, Jacqueline Sergeant, writing in Financial Advisor, explains why economist Laurence Kotlioff thinks the strategy could prove costly, depending on the time of death for the two spouses. “What if the low-earning spouse dies two weeks before the high-earning spouse and never collects the widow’s benefit?” he asks. Kotlikoff describes his own approach to planning as assuming that people are super risk-averse.

At Geyer Law, our approach is to help clients discover – and then prioritize – their goals for themselves, for their heirs, and possibly for organizations they wish to benefit, and then help them formalize those “wishes” in the form of estate planning documents.

– by Jude Byansky, Attorney at Rebecca W. Geyer & Associates