Social Security Strategies for Married Baby Boomers

(Please Note: some of the information here is now out of date because of recent changes to Social Security rules. I’m leaving it up because some folks are grandfathered in. For more up to date information, please see this post: Congress Kills File and Suspend

In 2007, the first Baby Boomers filed for Social Security benefits online. Did they file early or did they delay? It’s pretty common for Boomers to take benefits as early as possible once they retire.

But should you?

Married Boomers have the option to collect a “free” spousal benefit. Before we discuss this, let’s cover a few Social Security basics:

  • You can start your benefits as early at age 62, or you can postpone your benefits to age 70.
  • If you want to start receiving benefits when you are 62, you can begin applying up to 3 months before your 62nd birthday so that you can begin receiving benefits when you turn 62.
  • For every year you delay collecting benefits after age 62, your potential future earnings may increase as much 7-8%.
  • At age 70 social security earnings increases stop.

Married couples can maximize their Social Security benefits with a few strategies and considerations. As you sit down with your spouse and financial planner to discuss benefits, remember this: small sacrifices now can result in higher benefits in the future. When you are planning, consider the following when claiming benefits:

1. IS THERE AN EARNINGS RECORD DIFFERENCE?

If there is an income disparity between spouses, meaning one has earned more in the years leading up to retirement age, the higher-earning spouse can file for his/her benefits. When this happens, the spouse then becomes eligible for the spousal benefit which can be as much as ½ of the benefit the higher-earning spouse. At normal retirement age (if they filed early) the higher earner can also “suspend” their payments until age 70.  The strategy permits the higher-earning spouse to continue to work or withdraw from a retirement account, while suspending his/her social security benefits and accruing a higher benefit at age 70.

2. SHOULD YOU OPT FOR FREE SPOUSAL BENEFIT?

Couples can draw on their own work record Social Security benefit at different times.  When you are ready to begin collecting benefits, one of you can decide if you want to receive your earnings record or your spouses earnings record.

Consider Jane and Joe, both age 66 and their normal retirement age (NRA) is age 66. With identical earnings records, they both qualify for a $2000 benefit on their own work record at age 66. Both are retired.

Joe (or Jane) can file for benefits on their own work record and the other spouse may file for a 1/2 spousal benefit. So in this case, if Joe files for benefits, Jane can file a “restricted application” indicating the she is filing only for her 1/2 spousal benefit. The outcome is that Jane collects a $1000 spousal benefit  for 48 months while her own benefit continues to grow. At age 70 she can turn on her own benefit and collect the higher payments!

Jane collecting the spousal benefit was predicated on Joe filing for his own benefits, but he doesn’t have to keep collecting them. He could file his application, so Jane can start benefits, and then automatically suspend his benefit. Jane keeps collecting the spousal benefit, and now Joe’s benefit continues to accumulate.

In this case, they’ve maximized their Social Security income at age 70, all the while collecting the free spousal benefit along the way (another option would be for Jane to her benefit at age 62 and later switch to a higher 1/2 spousal benefit).

Now, you might be thinking “That’s great!” Jane can collect a spousal on Joe’s record. Can’t Jane file for her own benefit and suspend like Joe did. Would this allow Joe to collect a spousal benefit just like Jane’s doing?

Unfortunately, Social Security won’t let you do this. Only one spouse may have a spousal benefit. As soon as Jane files for benefits, it terminates her spousal benefit on Joe’s record.

If you do not request your spouse’s benefits when you apply, the SSA will automatically give you the highest benefit amount, likely your own earnings record–an outcome you may wish to avoid if you wish to maximize Social Security.

3. SHOULD YOU MAXIMIZE SURVIVOR BENEFITS?

Now, let’s consider the example above again but with a different lifetime earnings. Let’s assume Joe had the highest possible earnings record in his Job and that his benefit was $2700 at his normal retirement age (NRA) of 66 years old, and that Jane has no work record of her own. Further, Jane’s family is known for their longevity.

Jane’s mom is still alive and kicking at age 95. Jane has provided Joe with a wonderful family and home–his success is as much hers as his. He knows she’ll probably outlive him and he wants to make sure she has ample income in retirement.

With Joe filing (and suspending) they grab the free spousal benefit for Jane, while Joe’s benefit continues to climb. At age 70 his benefit is nearly $3564 per month. We presume that Jane will outlive Joe and when this happens, Jane is able to switch from a spousal benefit to a survivor benefit. In doing so she can collect 100% of his benefit. Because they decided to delay Joe’s benefit, she receives a big bump in income later in life.

Now, just one more example. Using the facts just above, let’s assume Jane has an earnings record which gives her a benefit at age 66 of $1200, $150 less than the spousal benefit. In this case, it makes sense to still take the free spousal benefit. Eventually, her own work record would pass the free spousal benefit, but eventually switch back to her own work record.

Frequently for married baby boomers, starting Social Security at the earliest possible time causes you to collect significantly lower benefits than delaying until normal retirement age or even age 70. It, quite literally, pays to run the numbers.

Perhaps the most important take-away from this is the necessity for a conversation. A married couple must sit down and talk about immediate benefits and long-term goals. Get a clear understanding of your financial picture at 62 and beyond. We can help you determine what Social Security strategy is appropriate for your unique situation.

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