Social Security Strategies Part Two: Maximize Your Benefits

by Joe Plemon on November 9, 2009

In Part One of this two part series we discussed the following basics of Social Security: how it works, what is a spousal benefit, how does survivor’s benefit work and some things you should think about when considering whether to start receiving your social security benefit early.

In this post, I want to give you some strategies to help you maximize your benefits.

Social Security Strategies for Singles

Unless they have significant savings, or are unable to work because of health reasons, singles generally need to wait until full retirement age before drawing their benefits. Singles simply don’t have the advantage of a second income or a spousal benefit, and living as a single is nearly as expensive as a married couple. Whatever nest egg a single may have will be depleted quicker if they start their benefits earlier, both because they are drawing on it for a longer period of time and because they will need more of that nest egg by virtue of starting Social Security at a lower benefit level. Waiting is especially important for women. Why? Because of their longer life expectancies, they will more often live past the “break even point" (around age 78) when the larger delayed benefit will equal the total of the reduced benefits received by starting early.

Social Security Strategies for Married Couples

For clarity’s sake (and because it is this way in most families), I will refer to the higher earner as the man and the lower earner as the woman throughout the rest of this article.

Because (remember from Part One) the spousal benefit and the survivor’s benefit are based on the benefit of the top earner, married couples need to strategize their start dates in order to get maximum benefits. If the husband delays until full retirement age, he is putting his wife in position to draw his full benefit as a survivor benefit. If he waits until age 70, he is adding another 32% to the survivor benefit. And of course the larger his benefit, the larger her spousal benefit (maximum is 50% of his pension) will be.

Should Spousal Benefit Always be Delayed Till Full Retirement Age?

No. The ages of the spouses should be considered. For example, if the husband is 70 and the wife is 62, she should consider starting her spousal benefit at the reduced rate. Why? Because the husband is likely to die earlier and, at that time, her survivor’s benefit (based on HIS pension) would kick in. This is the same benefit she will receive whether she starts at age 62 or not, so she is better off bringing the extra money into the household now instead of waiting.

How Voluntary Suspension Can Help

Suppose the husband is full retirement age and wants to wait until age 70 before starting his benefits. Will the wife, who cannot draw the spousal benefit unless her husband has started his pension, need to wait until he is 70? Not if the couple takes advantage of voluntary suspension.

Here is how it works: The husband files for his benefit and the wife files for the spousal benefit (which will be less than 50% if she is under full retirement age). The husband then immediately requests a voluntary suspension of his pension. The wife will be able to collect her spousal benefit while the husband’s future benefit will grow by 8% annually. I like this strategy because the couple is bringing in “bonus" household income while the husband is patiently maxing out both his future pension and his wife’s future survivor benefit.

How the Top Earner Can Claim a Spousal Benefit While Waiting

Suppose the husband wants to wait until age 70 to start his pension but his wife also qualifies for benefits based on her own work record. Think through this one with me: she could start her benefit and he could sign up for the spousal benefit while waiting until age 70 to start his own. At that point he switches to his own higher benefit. As in previous examples, this will increase the survivor’s benefit, but will do so while bringing extra income into the household. And the wife could also switch to a spousal benefit based on what the husband’s benefit would have been at age 66. This is very similar to having your cake and eating it too.

One caveat: the higher earning spouse cannot use this tactic if he is younger than full retirement age.

The Second Chance Option

What if you claimed your benefits earlier than full retirement age and then later decide that you should have waited? The Social Security Administration has a plan just for you: you can repay all benefits, free of interest and then reapply for a bigger benefit later. You will need to also return any spousal benefits you have received.

Is this for you? One obvious advantage is that you (and your spouse if she receives a spousal benefit) will receive higher monthly pensions for the rest of your lives. Also, by bumping up the pension amount you have also increased the survivor’s benefit. Of course your health is a major consideration, but if poor health is not an issue, this option starts becoming quite attractive.

Of course the payment must come from a source that will not significantly affect your life. For example, you would not want to deplete your emergency fund, but if you were drawing interest from a nest egg while leaving the principle untouched, using this nest egg could be a consideration.

You would probably want your estate planner to help you crunch these numbers, but this do-over is certainly an option to consider.

Summary

Although Social Security can be complicated, you should be certain that you understand the basics so you can make intelligent decisions on what is right for your household. This is your pension that you have paid into all of your working life. Make sure you maximize your benefits.

{ 6 comments… read them below or add one }

jille May 7, 2011 at 3:59 pm

Thanks for clarifying some confusing information.

I have a question…

Can the higher earning husband get full retirement age benefits and the lower earning wife wait to apply for or apply and suspend her own full retirement age benefits up to age 70 with the following results?

The husband will get his full retirement age benefit amount.
The wife will get 50% of her husband’s full retirement age benefit amount but none of her own.
At age 70, the wife will stop getting half of her husband’s benefit amount and get her own higher benefit amount, which is, at age 70, more than half of full retirement age amount

So confusing to me…Thanks for any help!

Reply

joeplemon May 9, 2011 at 9:24 am

jille,

Yes, it is confusing, and I always recommend discussing these things with the Social Security Administration before making final decisions. But, based on my understanding, yes…the wife could begin drawing her spousal benefit (1/2 of her husband’s benefit) and continue to draw it until age 70 and then start drawing on her own benefit, which, as you point out, would be much larger at that time. In fact, I think that is a great plan.

Note that the wife would need to be full retirement age herself before she would get the full 50% of her husband’s benefit. However, even if she is only 62, it would still be a good idea to start drawing a “reduced” spousal benefit because she is going to switch to her own benefit at age 70 anyway. In my mind, it is almost free money for those years until age 70.

If you learn anything different after checking with SSA, let me know.

Reply

Yolanda Narron October 11, 2012 at 8:55 pm

My husband is age 74 & he retired at age 62 due to health problems. I am 61, turning 62 in December, 2012. I have continued to work through-out his retirement and plan to continue to work until age 66. When I turn 62 and continue to work as planned, can I file for the 50% of his social security benefit even though I continue working? And will this affect his social security benefits he is receiving right now?

Reply

Joe Plemon October 18, 2012 at 10:29 am

Yolanda,
Yes, you can file for spousal benefit of 50% of your husband’s benefit, but it will be reduced by 25% of that amount because you are filing early (age 62 instead of waiting until full retirement age of 66). Also, if you continue to work, your SS benefit will be “penalized” by $1 for every $2 you earn over a certain threshold ($14,640 in 2012).

In summary, you can draw 37.5% of your husband’s benefit if you file at age 62, but you will be penalized $1 of every $2 you earn above an annual limit. Does this make sense? Let me know.

Reply

Ralph November 30, 2012 at 6:08 pm

My wife and I are the same age. I have earned the most money and expect 3 times the monthly benifit. When we I get 62 I can file and suspend. She can claim spousal benifits. When she gets 66. Can She file and suspend and continue to get spousal benifits and I claim spousal benifits while both our own benifits contine to grow till we get to the 70 maximum age?

or If we have plenty of savings and reasonably expect to live in the 80’s (say 82), do we get more money just waiting to 70 to file?

Reply

Joe Plemon December 3, 2012 at 3:28 pm

Ralph,

My understanding is that you need to be full retirement age (66) before you can file and suspend. Your wife would also need to be full retirement age before she could file a spousal benefit on your retirement. Fortunately, you are both the same age, so this seems to be a good plan, and one you should probably do because your benefit is so much more than hers. In other words, her spousal benefit (50% of your benefit) will be more than her own benefit, so she will want to file a spousal benefit. Once she files that spousal benefit will be set, so if she waits until you are both 70, it will be more than if she starts at age 66. But I think you would be better off in the long run if she starts her benefit at age 66 after you have filed and suspended your benefit.

And no, you can’t both file and suspend. The following is a quote from the SS web site. I hope it helps.

“If you have reached full retirement age, but are not yet age 70, you can ask us to suspend retirement benefit payments.

If you apply for benefits and we have not yet made a determination that you are entitled, you may voluntarily suspend benefits for any month for which you have not received a payment. Your request to suspend benefits may include any retroactive benefits that might be due.

If you and your current spouse are full retirement age, one of you can apply for retirement benefits now and have the payments suspended, while the other applies only for spouse’s benefits. This strategy allows both of you to delay receiving retirement benefits on your own records so you can get delayed retirement credits.

Note: If you want to do this, only one of you can apply for retirement benefits and have the payments suspended."

Reply

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