Social Security strategy to boost couples’ benefits

November 29, 2020 | (Rachel Nania)

WASHINGTON — With one out of every four 65-year-olds living past age 90 and one in 10 living beyond 95, having enough money to live on during a retirement that could last 30 years or more is critical.

For many, a Social Security benefit is a significant source of retirement income, yet most people are not aware of strategies that benefit married couples, widows and widowers, and even divorcees. Today, I plan to focus on strategies that every married couple should consider.

Claiming your Social Security benefit used to be pretty straight forward – you reached retirement age and received benefits based on your work record. But in 2000, the Social Security Administration added something called “file and suspend,” which changed the rules and opened the door for married couples to receive potentially much more income during their retirement years.

The “file and suspend” strategy allows one spouse who has reached full retirement age, and usually the one with the higher earnings, to file for his/her Social Security benefits and then suspend (or delay) receiving the benefits until age 70, after the maximum amount is reached. During that time, the benefits will earn an 8 percent annual delayed retirement credit. That’s a significant annual increase.

This also triggers the ability for the other spouse to claim his/her spousal benefit, which is typically 50 percent of the other’s benefit as long as full retirement age is reached. A spouse can claim spousal benefits as early as age 62, but those benefits will be less than 50 percent. By claiming their spousal benefits instead of their own, they receive income while the benefits under their own record continue to increase. Learn more about the qualifications for spousal benefits.

The rules for this can be a bit complicated, so I’m using my favorite couple example, Doug and Rachel, to help illustrate the basic steps.

  1. Doug files and suspends benefits on his earnings record at age 67 when his spouse, Rachel reaches her full retirement age at 66.
  2. Rachel files a restricted application for spousal benefits in the amount of $1,180 per month (50 percent of Doug’s $2,360 benefit), rather than collecting her own benefits at age 66.
  3. Doug begins receiving his benefits on his earnings record in the amount of $3,120 at age 70.
  4. Rachel switches to her own benefits in the amount of $2,515 at age 70.

Here’s the fine print:

The break, even for the “file and suspend” strategy, is typically around age 80 for the older of the two spouses, so I only recommend it if clients are in good health with a longer life expectancy.

Also, if you need the Social Security income to meet your expected living expenses, then I would not recommend this option.

Significant payoff:

Assuming that the couple in the example is in good health and can do without the additional income until age 70, the impact on their cumulative income is significant. When Doug is 85 and Rachel is 83, they will have received an additional $113,344 when compared to what they would have received if they filed for benefits under their own record.

For many married couples approaching retirement, the “file and suspend” strategy provides them the best potential for maximizing their expected lifetime benefits while reducing the risk that they will not have enough money in their later years.

More information:

Mary Beth Franklin is a nationally recognized Social Security expert and contributing editor to Investment News. She explains more about the “file and suspend” strategy in this Morningstar video, “How File and Suspend Works for Social Security Beneficiaries”.

To learn more about the “file and suspend” strategy and to calculate your benefits, here’s a helpful link to the Social Security website.

The Social Security Administration is one of those rare agencies with knowledgeable and helpful representatives. If you have questions or need additional assistance, you can reach them at 800-772-1213.

I plan to focus on claiming strategies for that benefit widows, widowers and divorcees in a future article.

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