The ages and individual earning histories of the spouses will
determine the best approach
February 21, 2020 BY MARY BETH FRANKLIN
Married
couples have the most flexibility when it comes to collecting Social Security
benefits. The best claiming strategies depend on the relative ages and
individual earning histories of the spouses.
In most
cases, it makes sense for the higher-earning spouse to delay claiming Social
Security for as long as possible — up to age 70 —
to lock in not just the maximum retirement benefits for the couple during their
lifetime, but also the largest possible survivor benefit for the remaining
spouse. That assumes both spouses are relatively healthy, can afford to delay
collecting benefits and are close in age.
This
year marks the beginning of a new era of Social Security planning as the result
of the disappearance of a critical claiming strategy for people who reach full
retirement age in 2020 or later. But the ability to file a “restricted claim
for spousal benefits” still exists for people who were born on or before Jan.
1, 1954.
For
example, one reader recently wrote to me noting that his wife is 69, retired
and has been collecting Social Security benefits since she was 62 years old. He
is 66, still working and has not yet claimed Social Security. He asked
what they could do to maximize their Social Security benefits. He plans to wait
until age 70 to claim his benefits.
“The
amount I would receive in Social Security benefits is significantly more than
double the amount she currently receives,” he wrote. “Is there a way for her to
be able to get half of my Social Security now?”
No, the
wife won’t be able to collect on her husband’s earnings record until he claims
his Social Security. But in the meantime, because he was born before the Jan.
1, 1954, cutoff date, he could collect half of her full retirement age benefit
amount while his own Social Security retirement benefit continues to grow by 8%
per year up to age 70
Once he
does claim his benefit, his wife might step up to a larger amount, but it would
be worth less than half of his full retirement age amount because she claimed
her own Social Security benefit early. The key is to determine the “excess
spousal amount” by subtracting the wife’s smaller FRA benefit from half of her
husband’s larger FRA amount.
Let’s
assume the husband’s benefit at his FRA is $2,800 per month and the wife’s FRA
is $1,000 per month. The excess spousal amount is $400, which is the difference
between her FRA amount ($1,000) and half of his FRA amount ($1,400). The
maximum spousal amount is worth half of the worker’s FRA amount, not half of a
larger amount that may include delayed retirement credits.
But
because she claimed Social Security at age 62, her retirement benefit is
permanently reduced by 25% to $750 per month. Once her husband claims his
Social Security, the excess spousal amount of $400 would be added to her
permanently reduced benefit of $750 for a total new benefit of $1,150. Her
benefit will never be worth half of his FRA amount — $1,400 per month — because
she claimed her retirement benefit early.
If the
husband waits until 70 to claim Social Security, he would receive about $3,696
per month — a 32% increase from his FRA benefit amount of $2,800 because he
earned delayed retirement credits of 8% per year for every year he postponed
claiming benefits beyond his FRA up to age 70.
If he
dies first, his widow would be entitled to a survivor benefit worth
100% of what he was receiving at time of death and her smaller retirement
benefits would disappear. Even though her retirement benefits were permanently
reduced because she claimed her own Social Security early, it would not affect
her survivor benefits if she was at least full retirement age when she became
widowed.
In the
meantime, this reader, who was born on or before Jan. 1, 1954, could still file
a “restricted claim for spousal benefits” and collect half of his wife’s full
retirement age benefit amount — not half of her reduced benefits — while his
own retirement benefits to continue to grow by 8% per year up to age 70. People
who were born after that date can’t use this strategy.
Another
adviser wrote to me asking for claiming strategy guidance for a married couple,
both age 62 with a full retirement age of 66 and 8 months. The husband is still
working. The wife is not.
Because
they were both born after the Jan. 1, 1954, cutoff date, neither spouse has
access to creative claiming option. They will each be paid the highest amount
to which they are entitled at their age of claim, whether on their own earnings
record or as a spouse. They don’t get to choose which benefit they want to
receive.
No comments:
Post a Comment