Social Security puzzle: Married couples can claim 8,000 ways

If you thought saving for retirement was complicated, you're in for a whole new world of confusion when it's time to claim Social Security, most people's biggest retirement asset.

For the average married couple, Social Security amounts to $1 million or more, said Bill Meyer, a founder and managing principal of Social Security Solutions, a software company that helps its consumers analyze the impact of different claiming decisions. And according to the Social Security Administration, the benefit represents close to 40 percent of the average retiree's income.

Social Security
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"The difference between a good strategy and a bad strategy can be hundreds of thousands of dollars," Meyer said. "People should not take this decision lightly."

Consider this: A married couple has more than 8,000 different claiming possibilities between them. What's more, once you've settled on when and how to claim, you only have one year for a do-over.

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That's why Social Security has become such a big part of what financial planners like Nancy Hecht of Certified Financial Group offer clients—even those only in their 20s. "When you're analyzing retirement from a cash flow and tax and benefits standpoint, Social Security is such a big piece of it," Hecht said.

A financial advisor or software can analyze every possible combination of strategies, but here are some of the most common mistakes people make around Social Security.

1. Jumping to claim. You are eligible to receive Social Security at age 62, but your benefit is reduced for each month you claim it before reaching full retirement age, around 66 for most baby boomers. On the other hand, you get a bonus of about 7 percent a year if you wait until 70, on top of the yearly inflation adjustment (it was 1.7 percent in 2014).

"For singles, the magic year is 80," Meyer said. "The cumulative benefits equal each other at 80 years old, so for every year you live past 80, it is better to wait."

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It may be impossible to make the gamble with a real level of certainty. "Nobody knows how long they're going to live, so you have to play it safe," said Rande Spiegelman, vice president of financial planning at the Schwab Center for Financial Research.

With life expectancy being what it is—a typical 65-year-old is likely to live beyond 85, according to the Centers for Disease Control—delaying is a wager worth making for many.

401(k) a failure?
401(k) a failure?   

"If someone is looking at filing at 62, chances are good that person needs the income," said Hecht at Certified Financial Group. "Then you just need to bite the bullet and do it, but if you can wait, then by all means do."

2. Ignoring the earnings test. If you have not yet reached full retirement age and are still working, taking Social Security is a doubly bad idea. First, you miss out on letting your Social Security benefit grow. Second, you must give up $1 for every $2 you earn above the limit for that year ($15,720 in 2015).

During the year that you reach full retirement age, however, you give up $1 for every $3 earned above a higher limit ($41,880 in 2015) until the month you become full retirement age, at which point you no longer give up any benefit due to earnings.

3. Failing to coordinate with your spouse. While delaying Social Security is often wise for singles, it's not so straightforward for married couples. Couples with a big earnings discrepancy might benefit from a "file and suspend" strategy.

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"I also call it 'Take some now, take some later,'" Hecht said.

The higher-earning spouse can file his or her benefit at full retirement age and suspend it, letting the benefit grow presumably to age 70. The other spouse can then claim a spousal benefit—half of the filer's benefit—at that time. When reaching full retirement age, the spouse can file for his or her own worker benefit if it's bigger than the spousal benefit.

"It typically works better than if both wait until 70," Schwab's Spiegelman said.

4. Deferring tax deferral. The conventional wisdom has always been to let your tax-deferred accounts, such as a 401(k) plan or individual retirement account, grow as long as possible, even if it meant taking Social Security early. It's time to rethink that strategy, said James Mahaney, vice president of strategic initiatives with Prudential Financial. In fact, you might come out ahead doing the opposite: dipping into your nest egg while your Social Security benefit continues to grow.

"You saved for your Social Security ... and you need to look at ways to maximize that income." -James Mahaney, vice president of strategic initiatives with Prudential Financial

"People become emotionally attached to their IRA and 401(k) because they worked so hard saving for it," he said. "But you saved for your Social Security, too, and you need to look at ways to maximize that income."

Spending down your tax-deferred savings earlier has the added benefit of reducing the taxes you pay on Social Security income later on, as well, helping you avoid the dreaded "tax torpedo." By reducing your nest egg, your required minimum distributions are spread out over a greater number of years and are therefore smaller each year.

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If Social Security is your only source of income, it won't be taxed. However, if your modified adjusted gross income—that is, all your sources of income including wages, taxable interest and realized capital gains—is greater than $32,000 for married people filing jointly and $25,000 for singles, as much as 85 percent of your Social Security can be taxed.

So keeping your withdrawals down in later years helps you avoid some of this tax.

5. Forgetting you were married before. Divorced couples who were married for at least 10 years can apply for spousal benefits starting at age 62, even if their former spouse hasn't claimed Social Security yet and is married. "And your ex never needs to know about it," said Hecht at Certified Financial Group.

The one catch is that the person seeking the spousal benefit must not have remarried themselves.

—By Ilana Polyak, special to CNBC.com