Married couples have the most flexibility in maximizing Social Security, but the rules about how and when to claim those benefits are very confusing.
Financial advisers and their clients are intrigued by the idea that one spouse may be able to claim a reduced retirement benefit early, while the other delays claiming benefits until they are worth more later, maximizing their joint lifetime benefits.
In between the extremes of collecting reduced benefits at the earliest age of 62 and maximum benefits at 70, there's room for a little magic.
But to engage in more-sophisticated strategies, such as filing a restricted claim for spousal benefits only, or filing and suspending benefits, at least one spouse must wait until his or her normal retirement age of 66 to take action. That's why, when I'm traveling around the country addressing financial adviser conferences or speaking to consumer audiences, I like to call 66 “the magic age.”
HAVING IT BOTH WAYS
One adviser from Denver recently wrote to me about two potential clients — a married couple, both medical doctors and both 65. He asked: “Can they each apply for benefits on the other spouse (so they are both collecting half of each other's benefit now) and then at 70 switch to their deferred individual benefits that would have been growing at 8% per year?”
I replied: No and yes.
No, they can't both claim spousal benefits. One spouse must take action to trigger benefits for the other spouse to claim them. But yes, there is a strategy that allows one of them to claim some Social Security benefits at 66 and for both of them to claim the maximum amount at 70.
Here's how it works. When the first spouse turns 66, he/she should file and suspend, triggering spousal benefits for the other. When the other spouse turns 66, he/she should file a restricted claim for spousal benefits only. Both delay collecting full retirement benefits until 70. The couple will end up collecting one spousal benefit at 66 and two maximum retirement benefits at 70.
Let me give you an example. Say both spouses are entitled to $2,000 per month at their normal retirement age of 66. When the husband turns 66, he can file and suspend his retirement benefit, triggering a $1,000-per-month spousal benefit for his wife. At 66, the wife can file a restricted claim for spousal benefits only, collecting the $1,000-per-month spousal benefit rather than her full $2,000 retirement benefit.
WAIT AND SWITCH
Because they have both deferred their own retirement benefits, each will continue to accrue delayed retirement credits worth 8% per year between his or her normal retirement age of 66 and 70. In this case, each of the $2,000-per-month retirement benefits at normal retirement age will increase to $2,640 per month by 70. At that point, they each would switch to collect his or her enhanced benefits.
In the above example, their combined Social Security benefits would total $5,280 per month at 70. That's more than $63,000 per year in guaranteed income for life, and their larger base amount also would translate into larger cost-of-living adjustments.
Remember my mantra: 66 is the magic age.
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