Strategic timing and tax coordination has the potential to add hundreds of thousands to your lifetime benefits
By Michael E. Carmona, MBA, CFP®, ChFC®, Diversified Portfolios Inc.
Most couples rush into Social Security without understanding the true cost. They think retirement means filing immediately. This mistake can lead to a significant reduction in their lifetime benefits and net worth.
At Diversified Portfolios Inc., we help couples coordinate their Social Security decisions with their broader financial picture. We bridge different perspectives on money and create strategies that work for both spouses over multiple lifetimes.
The Hidden Cost of Filing Early
The difference between filing early versus waiting until maximum benefit age can substantially increase your monthly payments. This timing decision alone can substantially impact a couple’s total wealth over their lifetime.
Early filing hurts more than just your own benefits. When you file early and predecease your spouse, they inherit your reduced benefit forever. If you are the higher earner, your decision can potentially affect their financial security for decades.
This matters because one spouse often outlives the other by 10 to 15 years. Your Social Security timing becomes their lifetime income decision.
When Couples Have Different Money Backgrounds
We often work with couples where one spouse grew up with financial security and another faced scarcity. One wants to wait for maximum benefits. The other needs income now for peace of mind.
These different perspectives create real tension around Social Security timing. We help couples find common ground by understanding what’s driving each viewpoint and creating solutions that honor both concerns.
Sometimes we can bridge the gap with investment income during those crucial years between retirement and optimal Social Security filing. This lets couples get the psychological comfort of income while preserving the long-term benefit.
The Roth Conversion Window Opportunity
Delaying Social Security creates one of the most powerful wealth-building opportunities available. Between retirement and 73, (or 75, if you were born after 1/1/1960), you’re likely in the lowest tax bracket of your adult life.
This is when smart couples execute a Roth conversion strategy. You move money from tax-deferred accounts to tax-free Roth accounts at historically low rates. That money then grows tax-free forever, and can also pass to your children without creating tax burdens for them. Roth IRAs are one of the most efficient inheritance vehicles for estate planning purposes.
Here’s the connection most people miss. As soon as you start Social Security, up to 85% becomes taxable income. This pushes you into higher brackets and may limit your conversion opportunity.
The difference in tax rates between early retirement and post-Social Security filing can significantly impact the cost of Roth conversions, potentially saving families substantial amounts over time. The Social Security timing decision directly impacts your tax strategy.
For inheritance planning, this becomes even more valuable. Your children have 10 years to empty inherited retirement accounts. Traditional IRAs get taxed at their highest working-year rates. Roth accounts pass tax-free. During years where your children may be in their highest potential tax bracket, it makes most sense not to burden them with additional limitations.
Common Misconceptions That Cost Money
Three of the biggest misconceptions we see include:
1. Thinking retirement, Social Security, and Medicare all happen together.
The timing for each decision depends on your unique situation.
2. Believing spousal benefits are automatic or straightforward.
The lower-earning spouse can collect up to 50% of their partner’s benefit, but can’t start until their spouse files.
3. Assuming divorced spouses lose all Social Security benefits.
Previous marriages can create claiming strategies that exceed current spousal benefits.
You retire when you can afford to stop working. Medicare eligibility starts at 65 regardless of work status. Some parts begin automatically while others require enrollment during a specific window, and missing deadlines can result in reduced benefits or penalties. Social Security should be timed for maximum lifetime value.
Complex Scenarios Call for Professional Guidance
Social Security rules have dozens of variables most people never consider.
- Working while collecting before full retirement age can reduce benefits further based on specific income limits.
- Health considerations change the math too. If family history suggests shorter life expectancy, early filing might make sense. If longevity runs in your family, waiting becomes even more valuable.
- Previous marriages add complexity. If you were married for 10 years and haven’t remarried, you might claim on an ex-spouse’s higher benefit instead of your own.
These scenarios require the kind of analysis that goes beyond online calculators. When we work with couples facing these complexities, we model different strategies against your complete financial picture.
Our Coordinated Approach at Diversified Portfolios
We don’t just optimize Social Security in isolation. Every decision connects to your comprehensive financial plan.
When couples come to us feeling uncertain about timing, we start by understanding your complete story. Your values, health outlook, family dynamics, and what fulfilling retirement means to both of you. Then we coordinate with your tax professional and estate attorney to ensure Social Security timing supports your broader objectives. Whether you want to maximize lifetime income or leave specific amounts to children, the strategy changes.
What This Means for Your Future
Social Security represents more than monthly income. When coordinated properly, it becomes inflation-protected wealth that can’t be outlived and supports multiple generations.
For couples expecting to live into their 80s and 90s, proper timing ensures the surviving spouse maintains financial independence and dignity. Combined with smart Roth conversion strategies, it can significantly reduce your family’s lifetime tax burden and overall generational wealth.
Some of the key decisions to coordinate include:
- Filing ages for both spouses
- Roth conversion timing
- Medicare enrollment strategy
- Investment withdrawal coordination
- And more
These represent a few coordination points, though there are many additional factors we customize to your unique family situation and goals. When done properly, all of these choices work together to maximize your family’s wealth over multiple lifetimes.
Next Steps
If you’re approaching retirement or are already there, don’t make Social Security decisions in isolation. The coordination with taxes, investments, and estate planning can add substantial value to your family’s wealth over multiple lifetimes.
We help couples transform Social Security from a government benefit into a cornerstone of comprehensive wealth strategy. If you’re ready to explore how coordinated planning can benefit your family, contact us to start the conversation, or learn about our complimentary first meeting, the “Financial MRI.”
