I love hearing from Investment News readers as they discover the mysteries of Social Security claiming strategies. One adviser from Gaithersburg, Md., recently wrote to me about the pleasant surprise he received when he filed for Social Security benefits at his normal retirement age and restricted his claim to spousal benefits only.
“I've always told my clients that if they do the so called Double Dip – filing for spousal benefits only and delay collecting their own larger benefit until later – that they would get 50% of their spouse's benefit,” Jim wrote. “I didn't find out that that's not true for most people until I did it myself and the result is good news!”
Jim's wife retired at 62 and filed for her own retirement benefits. When Jim turned 66 earlier this year, he filed for spousal benefits and expected to receive 50% of her age-62 benefits. “To my surprise, I received a larger check,” he wrote. “The 50% spousal benefit that everyone talks about is half of the Primary Insurance Amount (PIA) – the benefit at normal retirement – not half of the age-62 amount when many people file for benefits.”
Jim added: “Most practitioners and virtually all recipients of Social Security benefits are unaware of this.” The bottom line: He is now receiving 63% of his wife's age 62 benefits.
After congratulating Jim on his windfall, I confirmed that filing for spousal benefits at his normal retirement age entitles him to half of his wife's full retirement benefit, even if she collected reduced benefits early. It's a hard concept for many people to grasp, but it makes for a nice surprise.
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I noted that Social Security claiming rules are a double-edged sword, however. Many people are disappointed to learn that they will not get half of their spouse's enhanced benefit if the first spouse delays collecting Social Security benefits until they are worth the maximum amount at age 70. Again, it's half of PIA, not half of the enhanced benefit that includes delayed retirement credits.
If the spouse with the bigger retirement benefit dies first, though, the surviving spouse will collect 100% of what he received, including the extra credits. Of course, her own retirement benefits would drop off at that point.