Sometimes I feel like a proud parent watching a child take his first steps as I help financial advisers understand the basic rules of
Social Security. Other times, I'm wowed by the brilliance of my star pupils who have learned the nuances of sophisticated claiming strategies and have applied them in the most effective way to help their clients.
I received an e-mail recently from two such star pupils, Nancy Woodall and her colleague John Kerns. Both are advisers with Meridian Investment Counsel Inc. in San Leandro, Calif. The two advisers asked my opinion on how to maximize
Social Security benefits for their clients, a married couple where each spouse had turned 66 in January 2013.
Ms. Woodall and Mr. Kerns realized that their clients had reached full retirement age, when it is possible to exercise creative claiming strategies to maximize
Social Security benefits. The advisers said their clients are both in good health, have a family history of longevity on both sides and have sufficient financial resources to allow them to delay claiming benefits.
The advisers told me that the husband, Paul, is entitled to
Social Security benefits of about $2,500 per month now and nearly $3,400 per month if he delays collecting until 70. The wife, Jane, was eligible for her own
Social Security retirement benefit of about $650 per month when she turned 66 and about $870 per month if she waited until 70.
Given the fact that Jane's own retirement benefit of $650 per month is worth substantially less than her spousal benefit of $1,250, it wouldn't make sense for her to delay collecting benefits until age 70, Ms. Woodall said. It would be better for her to claim spousal benefits as soon as possible.
I agreed.
Ms.Woodall and Mr. Kerns also reasoned that it probably would make sense for the husband to file and suspend in order to trigger higher spousal benefits for his wife while he delayed collecting his own benefits until they were worth more.
I concurred.
But nearly a year had passed since both spouses had reached their full retirement age. They knew that an individual who is older than full retirement age when he or she makes a claim can request a lump sum payment of up to six months of retroactive benefits, beginning with the month they reached full retirement age.
But the advisers wondered if it were possible for the husband to file a retroactive claim to file and suspend his benefits in order to trigger spousal benefits for his wife.
I wasn't sure, so I asked the all-knowing staff at the
Social Security Administration's national press office in Baltimore. They didn't disappoint me.
“The husband can file for retirement benefits retroactively going back six months,”
Social Security spokeswoman Kia Anderson said in an e-mail. “Once he files for retroactive retirement benefits, he can voluntarily suspend his benefit during any period beginning with the first month of entitlement,” she added.
That's great news, but it gets even better.
“The wife could then apply for retirement benefits retroactively going back to the worker's first month of entitlement,” Ms. Anderson explained.
The advisers were delighted with the news. This is what it will means for their very happy clients.
The husband, Paul, will file and suspend and make that election retroactive to six months ago, Ms. Woodall told me. Paul will collect nothing until he reaches age 70.
In the interim, Paul will earn delayed retirement credits worth 8% per year for every year he postpones claiming benefits. That will boost his basic benefit by 32% to $3,388 per month, plus intervening cost-of-living adjustments.
The wife, Jane, will file for
Social Security benefits and receive six months of retroactive spousal benefits (about $7,500 based on half of Paul's full retirement age amount). That's nearly double what Jane would have gotten if she filed retroactively for her own retirement benefit.
“This strategy preserves Paul's full benefit at age 70 (132% of his full retirement age benefit) and gets the couple the largest cumulative joint-life benefit,” Ms. Woodall wrote.
She said her colleague, Mr. Kerns, plans to accompany the clients on their visit to the
Social Security office and promises to keep me updated on the outcome.
