Early Retirement

Study #260 - Does It Pay Both Spouses to Work?

Our Social Security system is best designed for a married couple in which the husband works in the labor market and the wife stays at home. At the time of retirement, the wife is entitled to a monthly benefit equal to 50 percent of her husband’s benefit (the spousal benefit). If the husband dies first, a wife is entitled during her retirement years to 100 percent of her husband’s benefit (the survivor benefit). This is a generous outcome, considering that the woman in this example never pays a dime in payroll taxes.

Of course, the couple’s arrangement could be reversed. That is, the wife could work and the husband could stay at home. Regardless of the arrangement, Social Security is much less generous to two-earner than to one-earner couples. For example, a woman can earn Social Security benefits in her own right. But she cannot claim benefits in her own right in addition to spousal benefits on her husband’s contributions. It must be one or the other. Many women who have paid into Social Security over their work lives find that when they reach retirement their best option is to claim benefits on their husband’s contributions. As a result, they get nothing in return for all the payroll taxes they paid. Others find that even if it is better to claim benefits on their own contributions, the net benefit is not much more than they would have received if they had never worked and never paid taxes.

Calculating the exact impact of Social Security on working couples is complicated. Going to work, earning a living, and spending one’s earnings over time affects a variety of taxes and government benefits — not just in the current year, but in all future years.