Medicare, Social Security, and Insurance How Staggered Retirement Affects Social Security Benefits 12/12/2024 | By Sandra Block Even though you and your spouse may have originally planned to retire at the same time, the reality may be different. Staggered retirement has become increasingly common among dual-income couples for a variety of reasons, ranging from age differences to contrasting views of job satisfaction. In some cases, retirement is unavoidable — one partner can no longer work because of health issues, for example, or is a victim of corporate cutbacks. Staggered retirement can help couples increase their combined Social Security income by allowing one or both to delay filing for benefits. The spouse who continues working will also be able to continue to increase the amount of benefits they’ll receive based on their earnings record — particularly important if that spouse took time out of the workforce to care for children or elderly parents. Social Security benefits are based on your 35 years of highest earnings, so working a few more years could replace no- or low-earning years with higher-income years. Meanwhile, if the working spouse’s income provides enough money to pay the bills, the retired spouse may be able to delay filing for benefits, which will also lead to a larger payout. While you can file for benefits as early as age 62, your benefits will be up to 30% lower. If you wait until your full retirement age (FRA), you’ll be entitled to 100% of the Social Security benefits you’ve earned. (FRA is 66 for beneficiaries born between 1943 and 1954; it gradually increases to 67 for beneficiaries born in 1960 or later.) If you’re able to postpone filing for benefits past your FRA, your monthly Social Security benefit will grow by 8% a year until you reach age 70. Any cost-of-living adjustments will be included, too, so you don’t forgo those by waiting. Because you’re living on one income instead of two, you may be inclined to file for Social Security before age 70, or even before your FRA. Although that may enable you to postpone taking money out of your savings, it could also result in some unforeseen tax consequences. Taxes on Social Security benefits are based on what Social Security defines as your provisional income (sometimes referred to as combined income), which consists of half of your Social Security benefits plus other sources that contribute to your adjusted gross income, including withdrawals from tax-deferred accounts, capital gains from taxable accounts and wages from a job. If your provisional income ranges from $25,000 to $34,000 for single filers, or $32,000 to $44,000 for joint filers, up to 50% of your benefits will be taxable. If your provisional income is more than $34,000, or $44,000 for joint filers, up to 85% of your benefits will be taxable. If one spouse files for benefits while the other is working, there’s a good chance that up to 85% of the payments will be taxed, says Clark Randall, a CFP with Creekmur Wealth Advisors in Dallas. Waiting to file until you’re both retired may not eliminate taxes on your benefits — because the thresholds were never adjusted for inflation, more than half of beneficiaries pay taxes on their benefits — but it could reduce them. Keep in mind, too, that if the retired spouse decides to pursue part-time work or a side gig after filing for benefits, he or she could be subject to what’s known as the Social Security earnings test. In the years before the year you reach your full retirement age, Social Security will withhold $1 in benefits for every $2 you earn over a certain threshold — for 2025, it’s $23,400. In the year you attain your FRA, Social Security withholds $1 in benefits for every $3 you earn over a specified amount — $62,160 for 2025 — but only in the months prior to the one of your birthday. Once you reach your FRA, your earnings will have no impact on benefits, and Social Security will boost your checks to repay you for benefits withheld through the earnings test. Sandra Block is senior editor at Kiplinger Personal Finance magazine. For more on this and similar money topics, visit Kiplinger.com. ©2024 The Kiplinger Washington Editors, Inc. Distributed by Tribune Content Agency, LLC. Read more related retirement articles on Seniors Guide: Phased Retirement Has Its Benefits Read More Sandra Block Sandra Block is a senior editor at Kiplinger’s Personal Finance magazine. For more on this and similar money topics, visit Kiplinger.com.