I want to congratulate one of my Investment News readers for succinctly stating the Social Security-claiming strategy question that is on the minds of almost every financial adviser.
“Is it possible for both spouses to file and suspend their benefits and collect spousal benefits on each other?” Malcolm Greenough, an investment adviser in Rochelle Park, N.J., asked in an e-mail. “Then at 70, could they each collect their maximum benefits?”
The short answer is no.
If you are at least full retirement age, you can apply for retirement benefits and then request to have payments suspended. That way, your spouse can receive a spousal benefit and you can continue to earn delayed retirement credits until 70.
But only one member of a couple can file and suspend so his or her current spouse can collect benefits, the Social Security Administration states on the retirement benefits planner section of its website.
The SSA's online retirement planner also notes that if your spouse has reached full retirement age — currently 66 for anyone born from 1943 through 1954 — and is eligible for both a spouse's benefit and retirement benefits based on his or her own earnings history, he or she has a choice. Your spouse can elect to receive only the spouse's benefit when he or she applies for Social Security and delay receiving retirement benefits until a later date. That is known as filing a restricted claim for spousal benefits only.
The SSA also notes that if both you and your spouse are full retirement age, only one of you can choose to receive spouse's benefits now and delay receiving your own retirement benefits until later.
Social Security retirement benefits earn delayed retirement credits worth 8% per year for each year you postpone collecting benefits beyond your full retirement age up to 70.
But there is a way to coordinate these two claiming strategies to achieve the best of both worlds, assuming both spouses are at least full retirement age.
At 66 or later, one spouse could file and suspend benefits, triggering benefits for the other spouse and delaying his or her own benefits until they are worth more later.
Then the second spouse could file a restricted claim for spousal benefits only and collect half of the first spouse's full retirement age benefit.
At 70, each spouse could switch to their maximum retirement benefits which would include up to 32% in delayed retirement credits, boosting their benefit to 132% of their full retirement age benefits.
The math works like this. Assume both spouses are 66 years old and each is entitled to a retirement benefit of $2,000 per month.
The husband files and suspends his benefits, triggering spousal benefits for his wife while his own retirement benefits continue to accrue delayed retirement credits. The wife files a restricted claim for spousal benefits.
The husband would collect nothing for the next four years. The wife would collect $1,000 per month — half of her husband's primary insurance amount or PIA — for the next four years. At 70, they would both switch to their own retirement benefit which would each be worth $2,640 per month — 132% of their full retirement age benefit.
That adds up to a combined Social Security benefit of more than $63,000 per year.
The amount would actually be even higher, as intervening annual cost-of-living adjustments would be applied.
Of course, the tradeoff is the couple would forfeit about $144,000 in Social Security benefits during those first four years, as the husband would collect nothing and the wife would collect only her spousal benefits. But they would each lock in maximum retirement benefits, which will provide a larger base for future COLAs, and would guarantee the largest survivor benefit for the remaining spouse. When one spouse dies, the smaller benefit disappears.
This combination claiming strategy works well when both spouses have similar earnings history and are close in age. But it won't work for all your clients. And that's where developing a working knowledge of Social Security rules and claiming strategies will come in handy.