By now, most financial advisers and many consumers realize that delaying Social Security benefits until age 70 can pay off big time. For every year individuals postpone claiming benefits beyond their full retirement age, they earn an extra 8% per year up to age 70.
What is less obvious is what one needs to do to claim those maximum benefits. Like so many rules involving Social Security, the answer varies depending on individual circumstances.
For someone whose full retirement age is 66, which applies to anyone born from 1943 through 1954, their basic benefit can increase by 32% if they wait until age 70 to claim. The full retirement age for those born from 1955 through 1960 and beyond ranges from 66 and 2 months to 67. Their delayed retirement credits increase by 0.66% per month—totaling 8% per year—for postponing benefits beyond full retirement age up to age 70.
At my daily morning exercise class, which is populated mainly by retirees, I am often besieged by questions about Social Security and Medicare. Recently a fellow Jazzerciser asked me what she and her husband needed to do to claim their Social Security benefits when each turns 70 later this year.
This couple is lucky. Both spouses were born in 1949, which means they were each able to take advantage of lucrative Social Security claiming strategies before the rules changed as a result of the Bipartisan Budget Act of 2015.
The husband, Skip, filed and suspended his Social Security benefits in 2015 when he turned 66. That was before the file-and-suspend claiming strategy disappeared for good on April 30, 2016. His action triggered a spousal benefit for his wife, Joanne, allowing her to collect half of his full retirement age benefit amount while each of their own Social Security retirement benefits accrued delayed retirement credits. Skip has not received any Social Security benefits so far.
Joanne asked me what she and Skip needed to do to collect their maximum Social Security benefits when they turn 70.
In Skip's case, he does not have to do anything. Because he filed and suspended his benefits when he turned 66, his maximum benefits will automatically begin when he turns 70.
Financial advisers take note: The last group of people who were able to use the file-and-suspend strategy before the April 29, 2016, deadline turn 70 by the end of April 2020. Their benefits will automatically begin with the month of their 70th birthday.
Joanne's situation is different. Because she filed a "restricted claim for spousal benefits," she is collecting Social Security on her husband's earning record while her own retirement benefits continue to grow by 8% per year.
Joanne asked if her spousal benefits, currently worth half of Skip's amount at age 66, would increase once he claims his maximum benefit at 70.
No, her spousal benefits won't change once her husband claims. The maximum spousal benefit is worth 50% of the worker's full retirement age amount if the spouse collecting those benefits is at least full retirement age. Spousal benefits do not qualify for delayed retirement credits.
So what is the value of having one spouse delay claiming Social Security until age 70 if the other spouse can't share in an increased spousal benefit?
By delaying until age 70, the spouse with the maximum benefits is potentially increasing the future survivor benefit for the remaining spouse. A survivor benefit is worth 100% of what the deceased worker was receiving or entitled to receive at time of death, including any delayed retirement credits, assuming the spouse who is collecting survivor benefits is at least full retirement age. When one spouse dies, the bigger benefit continues as the survivor benefit and the smaller benefit disappears.
Joanne's maximum retirement benefits will not begin automatically. Currently, she is claiming spousal benefits on her husband's earnings record. To claim her own maximum retirement benefits at 70, she will have to file a claim on her own Social Security earnings record. And because she is already receiving Social Security spousal benefits as a spouse, she is not eligible to file for her own benefits on line. She will have to visit her local Social Security Administration office to claim her own larger retirement benefits.
Another note for financial advisers: 2019 marks the last eligible year for people turning to file a restricted claim for spousal benefits when they turn 66. To do so, they must have been born before Jan. 2, 1954, and the other spouse must be receiving his or her Social Security benefit, or must have filed and suspended benefits before the April 29, 2016, deadline.
Even though the file-and-suspend strategy is no longer available, individuals can still increase their Social Security benefits by waiting until age 70 to claim them. The difference is they will have to file for their benefits at age 70. It is not automatic. And if they forget, Social Security will not track them down.
It's an important point for advisers to remember: Note your clients' 70th birthday in your records and send them a reminder to claim their maximum Social Security benefit if they have claimed a benefit already.