How Married Couples Can Get the Most Out of Social Security
Determining when and how you’re going to begin receiving Social Security benefits is a big decision. It can impact your entire retirement because the age you apply for benefits directly affects the amount you receive. And if you’re married, ensuring you plan together is crucial, especially because there are a couple of strategies that can help boost your income.
These strategies have recently received a bad rap, particularly with the Obama administration claiming the wealthy use them to “manipulate” their Social Security decisions. But they’re completely legal, and financial planners often recommend these strategies to their clients.
“It’s not just for rich people,” William Meyer, co-founder of SocialSecuritySolutions.com, a fee-based service that helps people maximize benefits, told Reuters. “For many middle-income American couples, it’s a great strategy for the highest earner to get the delayed credit as high as possible.”
Ready to see what you can do to help maximize your benefits? Take a look at the two strategies being used and promoted throughout the country.
File and suspend
This can raise benefits for qualifying couples through the use of spousal benefits and delayed retirement credits. In order to be eligible, at least one member of the couple needs to have reached full retirement age, which is 66 for those born between 1943 and 1954, according to AARP. In 2000, this rule was added to Social Security as part of the Senior Citizens Freedom to Work Act as a way to help couples plan their retirements. “If your current spouse is full retirement age, he or she can apply for retirement benefits and then request to have payments suspended,” according to the SSA. “That way, you can receive spouse’s benefits and he or she can continue to earn delayed retirement credits until age 70.”
So how does it work? Let’s say the husband is the higher earner who wants to maximize his benefit by delaying until he’s 70. If his wife is 62 or older, she can opt to collect a benefit on her own earnings record. However, she may be able to collect more using a spousal benefit, which lets her collect up to 50 percent of her husband’s benefit. Something to keep in mind: she cannot collect a spousal benefit until he files for his own.
If you’d like a more immediate way to boost your income, file for a benefit and have the lower-earning member apply for a spousal benefit. Then ask Social Security to suspend your benefit. The other member will continue receiving a spousal benefit, even though you aren’t collecting yours. Proceed with caution here. If the member applying for a spousal benefit is younger than the full retirement age, the benefit will be less than 50 percent of the higher earners.It can also be helpful in the long run for the spouse with the lower salary. Should the higher-earning member die first, the file-and-suspend move helps protect them. They will be able to then collect 100 percent of your benefit at the time of your death, which will also include earned delayed retirement credits and cost-of-living adjustments.
Consider this hypothetical case to see how it works, per Reuters. A married couple, who are both turning 66 this year, file for benefits at their full retirement age. One is expecting a primary insurance amount of $2,000, while the other is anticipating $1,600. If the higher earner lives to 83 and the other lives to 95, their cumulative lifetime Social Security benefit will be $1,032,384. Now, say the higher earner files and suspends, while the other files for spousal benefits, receiving about $12,000 per year. Once they both reach 70, the higher earner files to start payments and the other switches to his or her own full benefit. By doing that, they have increases their spousal benefit by $136,088, to $1,168,472.
File for one benefit, then the other
Another way couples can increase their household income is by having one spouse file for spousal benefits first, and then switch to his or her own higher retirement benefit later, which is also referred to as restricting an application. This strategy only works if you are at the full retirement age. If you’re younger than the full retirement age you can’t choose between your own benefit and the spousal benefit; the Social Security Administration automatically gives you the highest benefit you’re entitled to, typically the one based on your earnings, per Kiplinger.
Once a spouse reaches the full retirement age and is eligible for a spousal benefit based on his or her spouse’s earnings records, he or she can choose to file a restricted application for spousal benefits. The trick here: that person should then delay applying for retirement benefits on his or her own earnings record (up until age 70) in order to earn delayed retirement credits, according to 360 Financial Literacy.
Here’s an example of a hypothetical situation where restricting an application applies, according to 360 Financial Literacy. In this example both spouses have substantial earnings but don’t want to postpone applying for benefits altogether. Let’s say the husband decides he wants to file for his Social Security retirement benefit when he turns 66, and based on his own earnings record brings in $2,400 a month. His wife then applies for spousal benefits based on his earnings record (because he’s already filed for benefits).
The wife then begins receiving 50 percent of her husband’s earnings, $1,200 per month in this example. Based on her own earnings record, which in this example is $2,100 per month at the full retirement age, she delays applying for benefits so she can continue earning delayed retirement credits. Once she hits 70, she then switches from collecting a spousal benefit to her own larger retirement benefit, which is now $2,772 per month (32 percent higher than it would have been if she applied at age 66). The restricting an application strategy has helped the couple to increase their household income, while also helping the lower-earning spouse to receive a larger benefit in the event of the other’s death.