What can married couples do to increase joint lifetime
benefits?
These factors aside, what if you have a choice? If you wait a few years to apply for Social Security, how much more income might you realize?
Postponement can also be used to enlarge survivor benefits. Let’s go back to Terry and Teresa: if they each start getting Social Security at 62, Teresa is looking at a $1,650 monthly survivor benefit if Bob passes away. But if Terry waits until 66 to claim his benefits, Teresa’s monthly survivor benefit would be $2,640.1
Citations.
3 – www.ssa.gov/retire2/agereduction.htm [11/15/12]
4 - www.investmentnews.com/article/20121105/BLOG05/121109984 [11/5/12]
5 - www.nextavenue.org/article/2012-08/how-avoid-making-social-security-mistakes [8/6/12]
6 - www.aarp.org/about-aarp/press-center/info-02-2012/new-aarp-survey-shows-many-unaware-of-social-security-claiming-strategies.html [2/29/12]
What
is your “magic number”? Roughly half of retirees claim Social Security
benefits at age 62, as soon as they become eligible. Some people delay benefits
and postpone using their retirement savings as an income source. Others apply
out of necessity; their financial situation leaves them little choice.1
These factors aside, what if you have a choice? If you wait a few years to apply for Social Security, how much more income might you realize?
Could
you wait until age 66?
The Social Security Administration has made 66 the “full” retirement age for
people born during 1943-1954. If you were born in this period and you apply for
Social Security at age 62, you will reduce your retirement benefit by 25% and
your spouse’s by 30%.2,3
That alone might convince you to wait. In
addition, there are claiming strategies that may bring spouses much greater
cumulative lifetime Social Security income, and they depend on one spouse waiting
until age 66 to apply for benefits.
That
may be the time for a file & suspend strategy. This tactic
positions a married couple to receive maximum Social Security benefits at age
70, with one spouse being able to claim some benefits at age 66.
An
example: Terry was born in 1947 and Teresa was born in 1951, so full retirement
age is 66 for both of them. Terry files his claim for Social Security benefits
at age 66, but then he elects to suspend his $2,000 monthly retirement benefit.
Doing that clears the way for Teresa to get a $1,000 monthly spousal benefit
when she reaches 66; she can do this by filing a restricted claim for spousal
benefits only at that time.4
So
while some spousal benefits are rolling in, Terry and Teresa have both elected
to put off receiving their own Social Security benefits until age 70. That
allows each of them to rack up delayed retirement credits (8% annually) between
66-70. So when Terry turns 70, he is eligible to collect an enhanced benefit: $2,640
per month instead of the $2,000 per month he would have received at age 66. At
70, Teresa can switch from receiving the $1,000 monthly spousal benefit to
collecting her enhanced benefits.1,4
Variations on file & suspend. There are other
ways to do this. For example, 66-year-old Terry could initially apply for
Teresa’s spousal benefits as Teresa applies for her own benefits at 62. Terry thereby
gets $800 a month while Teresa receives her own reduced benefit of $1,200 a
month. At 70, Terry foregoes getting the spousal benefit and switches to
receiving his own enhanced benefit ($2,640 a month thanks to those delayed
retirement credits). If Terry lives to age 83 and Teresa lives to age 90, their
total lifetime Social Security benefits will be $1,043,520 under this strategy,
as opposed to $840,600 if they each apply for benefits when they turn 62.1
Widows can also use a variant on the file-and-suspend
approach. As an example, Fran is set to receive $1,400 monthly from Social
Security at age 66. Her husband dies when she is 60. She can get a widow’s
benefit of $1,430 at 60, but instead she claims her own reduced benefit of
$1,050 at age 62, then switches to a widow's benefit of $2,000 at 66 (her
husband would have received $2,000 monthly at age 66). By doing this, she
positions herself to collect $112,000 more in lifetime benefits.1
Postponement can also be used to enlarge survivor benefits. Let’s go back to Terry and Teresa: if they each start getting Social Security at 62, Teresa is looking at a $1,650 monthly survivor benefit if Bob passes away. But if Terry waits until 66 to claim his benefits, Teresa’s monthly survivor benefit would be $2,640.1
Details
to note.
The file-and-suspend strategy is only allowable if one spouse has reached full
retirement age. In order for you to claim a spousal benefit, your husband or
wife has to be getting Social Security benefits. Applying for Social Security
before full retirement age with the idea that your spouse can collect spousal
benefits at 62 has a drawback: you are reducing both of your lifetime
retirement benefits.5
Only 29% of respondents in a 2012 AARP
survey knew that waiting until age 70 to apply for Social Security would bring
them their maximum monthly benefit. Congratulate yourself for being in that
group, and consider the long-range financial merits of claiming your benefits
years after age 62.6
To
Your Prosperity,
Kevin
Kroskey
This article prepared in
conjunction with Peter Montoya.
Citations.
1 - www.smartmoney.com/retirement/planning/strategies-to-max-out-social-security-benefits-1329243329517/
[3/2/12]
2 – www.ssa.gov/retire2/retirechart.htm [11/15/12]3 – www.ssa.gov/retire2/agereduction.htm [11/15/12]
4 - www.investmentnews.com/article/20121105/BLOG05/121109984 [11/5/12]
5 - www.nextavenue.org/article/2012-08/how-avoid-making-social-security-mistakes [8/6/12]
6 - www.aarp.org/about-aarp/press-center/info-02-2012/new-aarp-survey-shows-many-unaware-of-social-security-claiming-strategies.html [2/29/12]