In most cases, a retiree gets just one chance to decide how and when to collect Social Security benefits: claim a reduced benefit early; wait until normal retirement to receive a full benefit; or postpone retirement up until 70 to collect the biggest benefit, which includes up to four years of delayed retirement credits.
But those who chose to claim reduced benefits as early as possible at 62, for example, can't later claim the full retirement benefit once the normal retirement age of 66 is reached, nor can they expect to cash in on delayed retirement credits at 70. There is just one bite at the Social Security apple.
But some retirees, including married spouses, divorced ex-spouses and surviving spouses, may be entitled to two benefits: one based on their own earnings record and the other as a spouse, ex-spouse or surviving spouse.
Social Security pays only the largest benefit, not both. But there are some situations where a retiree can claim a smaller benefit now and a larger one later.
Here are a few examples of these "some now, more later" strategies drawn from the hundreds of questions I received during and after my Social Security Boot Camp webcast Aug. 20. The webcast is archived here: https://home.investmentnews.com/clickshare/eventPurchase.do?CSProduct=investmentnews-event&CSEventId=1136 .
Let's say a woman is entitled to a retirement benefit of $800 per month on her own earnings record at her full retirement age of 66. And let's also assume that her husband is entitled to a retirement benefit of $2,400 per month at his full retirement age of 66.
She decides to stop working and to collect her retirement benefits early at 62 while her husband continues to work. Because she claimed her retirement benefits four years before her full retirement age, they will be reduced by 25%.
So instead of collecting her full retirement benefit of $800 per month, she will receive $600 per month — 75% of her full retirement age benefit.
Four years later, her husband decides to retire and collect his full retirement age benefit of $2,400. Normally, the spousal benefit would be worth half that amount, or $1,200.
The wife can now step up to a larger spousal benefit, but because she claimed her own retirement benefit early, her spousal benefit will be worth less than half her husband's monthly retirement benefit.
Here is how the math works. Half the husband's full retirement age benefit is $1,200 if collected at 66. The wife's full retirement age benefit at 66 is $800.
The difference between the two benefits — the spousal benefit differential — is $400.
Because the wife collected her retirement benefits early, they were reduced by 25% to $600 per month. Once the husband claims his retirement benefit, she can step up to a higher spousal benefit, assuming that it is larger than her own.
In this case, she would collect $1,000 per month, which is the spousal benefit of $400 per month added to her own retirement benefit of $600 per month.
Now let's look at the case of a divorced spouse. Although she can collect a reduced retirement benefit on her ex-spouse's earnings record as early as 62, assuming that he is also at least 62, she might not want to.
Assuming that she has earnings on her own record, the ex-spouse may want to delay collecting Social Security benefits until her full retirement age of 66. At that point, she can file a restricted claim for spousal benefits only and collect a spousal benefit worth half her ex-husband's amount.
Then, if she waits until 70, she can switch to collecting retirement benefits on her own work record which would be worth 132% of her full retirement age amount.
Finally, let's look at a surviving spouse. She can also choose to receive a smaller Social Security benefit now and a larger benefit later, assuming that she has earnings on her own work record.
Survivor benefits are worth 100% of what the deceased worked collected or was entitled to collect at the time of death if the survivor collects benefits at 66 or later. Survivor benefits can be collected as early as 60, but they will be worth less.
But survivor benefits don't earn delayed retirement credits, so they never grow any larger if collected after full retirement age.
However, retirement benefits do earn delayed retirement credits worth 8% per year when collection is postponed beyond full retirement age up until 70. So in some cases, it may make sense to collect survivor benefits first and switch to a retirement benefit at 70 if that would result in a larger benefit.
So there are three different examples that financial advisers can use in their practices to help clients collect some Social Security benefits now and more later. But remember that in all the above cases, if those Social Security benefits are collected before full retirement age and the individual continues to work, earnings cap restrictions could reduce or wipe out the benefits.