Smart Social Security Strategies for Couples to Maximize Benefits

Most folks are aware that the age at which you begin receiving Social Security benefits impacts the size or your check. If you start collecting before you Full Retirement Age (FRA)- currently age 66- your benefit will be reduced. If you wait until age 70, the amount will be higher- at least 32% higher.

Each year beyond your FRA that you delay the start of benefits, your benefit is increased by 8%. This is called the Delayed Retirement Credit (DRC).

But it’s not just about the money. Few people are aware that if you are married, waiting at least until FRA to start Social Security also gives you additional options in terms of how you take your benefits, and the impact on both you and your spouse can be significant.

File and Suspend

One collection strategy that is only available once you have reached your FRA is called “file and suspend” and is most useful when once spouse is older than the other. Here’s how it works:

Let’s say George is 66 and Karen is 62. If he filed to start receiving benefits today, George would receive $2,000/month. However, he wants to delay starting Social Security in order to increase the size of his check. If he postpones collecting for four years, thanks to the Delayed Retirement Credit, his monthly check will be at least 32% higher (4 x 8%). In addition, he will also get the annual cost-of-living adjustments that Social Security recipients get during those years.

On the other hand, Karen wants to start receiving Social Security today. She would get $700/month if she were FRA. By starting four years early, her benefit would be reduced to $525/month.

She also can't claim a spousal benefit based upon her husband’s earnings; she’s not entitled to this until her spouse has filed for Social Security.

You Start, I’ll Wait

The solution? George files for benefits and at the same time tells Social Security to suspend them, i.e. not send him any checks. Since he has technically filed, this means Karen is now entitled to a spousal benefit. The amount of her check will be the amount she earned on her own work record or her spousal benefit- whichever is higher. Since Karen is under her FRA, in either case the amount will be reduced. In this scenario, Karen’s spousal benefit is higher, so she will receive $735/month.

Three months before turning age 70, George notifies Social Security that he would like to begin receiving a monthly check. Assuming an annual COLA of 3%, George’s monthly check will be $2,971/month- nearly 50% higher than his age 66 benefit.

“File and suspend” is an option that enables one spouse to significantly increase the size of their own benefit, while allowing their partner to qualify for spousal benefits.

“Restrict the Scope”

Another useful strategy that’s only available once you have reached FRA is called “file to restrict the scope” of your benefit. It comes in handy when both spouses are at least FRA and both have earned a Social Security benefit.

Let’s assume married couple Audrey and Lloyd both turn 66 (FRA) this year. Her benefit will be $2,500/month and his will be $1,800.

Lloyd files for Social Security and receives $1,800/month based upon his own work record.

When Audrey files her application, she tells Social Security to restrict the scope of her benefit, paying her only what she is entitled to as a spouse. Since she’s FRA, her spousal benefit is 50% of Lloyd’s:  $900/month.

The Four Year Pay-off

A few months before her 70th birthday, Audrey instructs Social Security to drop her spousal benefit and begin paying her the benefit she earned based upon her own work record.

Thanks to four years of the Delayed Retirement Credit and assuming annual COLAs of 3%, Audrey’s monthly check will grow to $3,713- almost 50% higher compared to what she would have received just four years earlier.

“File to restrict the scope” of your application enables a spouse who has reached FRA to collect some Social Security income while at the same time allowing their own benefit to earn up to four years of Delayed Retirement Credits and COLAs.

Boosting the Survivor’s Benefit

In both of the above examples, each couple accepted lower total benefits than they would have been entitled to in exchange for a substantially higher income four years later. Once they reached that point, their combined benefit steadily out-paced the income they would have received under the typical scenario where each individual claims as early as possible.

More importantly, by allowing the higher-earning spouse to wait until age 70 to begin collecting Social Security, they ensured a much higher standard of living for whichever spouse is the survivor. That’s because upon the death of a spouse, the widow(er) does not continue to receive both benefits. Instead, s/he will be paid whichever amount is higher.

The lesson: if you can afford it, postpone starting Social Security for as long as you can- at least until Full Retirement Age. Ideally, the spouse who has earned the higher benefit should delay until age 70.

Ms. Buckner is a Retirement and Financial Planning Specialist and an instructor in Franklin Templeton Investments' global Academy. The views expressed in this article are only those of Ms. Buckner or the individual commentator identified therein, and are not necessarily the views of Franklin Templeton Investments, which has not reviewed, and is not responsible for, the content. 

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