Recent legislation has reduced Social Security claiming strategies for married couples. For example, if you failed to initiate a “file-and-suspend” plan before April 30, 2016, that opportunity is no longer available.
Another popular approach for married couples—filing restricted applications for spousal benefits—is still viable, but only for those who reached age 62 on or before January 1, 2016. The people who were grandfathered for this tactic have age 66 as their full retirement age (FRA). At FRA, someone in this age group can apply for Social Security retirement benefits, restricting the claim to a benefit that’s based on the other spouse’s work record.
Example 1: Nick and Paula Robinson are married. Nick worked for more years than Paula, earning higher pay, so Nick has the larger Social Security benefit.
Suppose Paula is now age 64. She can file a restricted application to get a spousal benefit at age 66, her FRA. Paula’s spousal benefit could equal 50% of Nick’s benefit. Paula could collect this spousal benefit while her own benefit, based on her work history, continues to grow at 8% a year under current law.
Paula can collect a spousal benefit until age 70, the latest possible starting date. Assuming that Paula’s own benefit at some point will exceed the spousal benefit she receives on Nick’s work record, Paula would eventually receive her own, larger benefit.
Example 2: Assume the same facts as in example 1. If Nick meets the age requirement, he can file a restricted application to start his spousal benefit at age 66, his FRA. At this time, he could collect a benefit based on Paula’s work record. Meanwhile, Nick’s own retirement benefit can keep growing at 8% a year until as late as age 70. (A restricted application by one spouse requires the other spouse to be receiving benefits.) If you meet the age requirement for a restricted benefit, our office can help you calculate the method that will likely have the greater payout.
Such restricted applications are available only to certain people who are 63 and older in 2017. Even so, there are other opportunities for all married couples to consider in their planning for Social Security.
Example 3: Steve and Vicki Baker are married, with both reaching age 61 this year. They can’t use the restricted application strategy, as explained previously. Suppose both Steve and Vicki have substantial work histories, so they’ll both receive sizable Social Security benefits, but Vicki’s benefit would be larger. One plan is for Steve to begin his own benefits at age 62, the earliest date possible, while Vicki waits until age 70.
Assuming Steve is retired (so he won’t have earnings that reduce his Social Security benefits), Steve’s benefits would provide eight years of cash flow while the couple is in their 60s. This would make it easier for the Bakers to wait until Vicki reaches age 70 to start benefits; her larger benefit would increase by approximately 8% a year while she waits to start.
Moreover, if Vicki is the first spouse to die, Steve would receive the amount Vicki was receiving, as a surviving spouse. If Steve dies first, Vicki would continue to receive her larger benefit.
Among married couples, there may be one spouse who will get a much larger Social Security retirement benefit, often because the other spouse focused on raising the children and managing the household. How might such couples proceed?
Example 4: Jim Lawson has contributed much more to Social Security than his wife, Marie. Therefore, Jim will be entitled to a $2,600 monthly benefit at his FRA, but Marie’s FRA benefit will be only $800 a month. One approach is for Jim to claim benefits at his FRA and begin receiving $2,600 a month. Marie, who is the same age as Jim, also could claim at her FRA. If so, Marie would receive a spousal benefit that’s 50% of Jim’s benefit—$1,300 a month, in this example—which would be larger than her own. Here, Marie will get a large increase in benefits if she’s the surviving spouse.
Another strategy might work for spouses of different ages.
Example 5: Suppose that Marie Lawson is a few years younger than her husband, Jim. If Jim can wait to start benefits until he’s age 70, he’ll get the maximum monthly benefit. Marie could start at age 62, the earliest possible date, claiming benefits on her own work record. Marie would receive a reduced benefit because she started so early, but she’d still obtain some cash flow.
Marie could wait until Jim is 70 and claims his maximum benefit then claim a spousal benefit, which might increase her Social Security checks. Again, increasing Jim’s Social Security benefit will also increase Marie’s survivor’s benefit, if Jim predeceases her.
Deciding when to start Social Security will depend on many factors, such as health and the need for income. Our office can crunch the numbers for you to help you proceed.