The ‘collect Now And Later’ Social Security Strategy
The “collect now and later” strategy allows you to collect a spousal benefit while accumulating delayed retirement credits on your own benefit amount. Usually, the higher earner of a couple would consider this approach in order to get the most possible at age 70. That higher age-70 benefit amount would then get locked in as a survivor benefit.
To use this strategy, you must file a restricted application. You must also have reached full retirement age and your spouse must have applied for benefits.
Born On Or After January 2 1954
- Voluntary Suspension will stop all benefits based on your work record. Voluntary Suspension should be considered only to fix a mistake if you elected early and missed the one-year window to withdraw your claim.
- The option to file a Restricted Application for spousal benefits is no longer available. An active claim for retirement benefits will automatically trigger a claim for spousal benefits as soon as eligibility exists and vice-versa.
In more simple terms, this means that those born on or after January 2, 1954, can no longer use a file-and-suspend strategy , nor is it possible to file a restricted application for just spousal benefits.
How To Create The Optimal Social Security Spousal Benefits Strategy
Matt Bacon
At some point we will all have to make the decision on when to claim Social Security, and its a big one. The program forms the bedrock to a safe retirement income plan and getting it right can be the difference in tens of thousands of dollars compounded out over the rest of your life. But its a complicated system and even more so when you realize that your spouses earnings and decision on when to claim can impact yours!
Heres everything you need to know to find the optimal Social Security spousal benefits strategy, even when your personal circumstances arent necessarily straightforward.
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Strategy For Widowed Spouses
Widows and widowers may receive full benefits at their full retirement age or reduced benefits as early as age 60, as explained in the sections above. Remarrying after age 60 will not affect your eligibility for survivors benefits. However, it may be more convenient for you to forego your widow or widower spousal benefits depending on your circumstances.
If your current spouse is also eligible for Social Security benefits and earns more than your former spouse, you may wish to apply for spousal benefits based on your new spouses record instead.
If you are collecting a survivor benefit, but also qualify for a benefit on your own, you may wish to collect a survivor benefit in the early years of retirement and leave your own Social Security benefits to accrue delayed retirement credits. Then, you can switch to your own retirement benefit as late as age 70.
Benefits For Your Children
When you qualify for Social Security retirement benefits, your children may also qualify to receive benefits on your record. Your eligible child can be your biological child, adopted child, or stepchild. A dependent grandchild may also qualify.
To receive benefits, the child must:
- Be 18 or older and disabled from a disability that started before age 22.
Benefits stop when children reach age 18 unless they are disabled. However, if the child is still a full-time student at a secondary school at age 18, benefits will continue until the child graduates or until two months after the child becomes age 19, whichever is first.
Benefits paid for your child will not decrease your retirement benefit. In fact, the value of the benefits they may receive, added to your own, may help you decide if taking your benefits sooner may be more advantageous.
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Delay Starting To Collect Your Benefits
Next, consider delaying starting to collect your benefits. You can start as early as age 62 — you’ll collect smaller checks, but more of them than if you wait. Somewhere between age 66 and 67, you’ll reach your full retirement age, at which point you’ll be eligible to collect the full benefits to which you’re entitled. Delay beyond that point, and you’ll fatten your benefits up by about 8% for each year that you delay, until age 70.
The table below shows how much of your full benefits you can expect to collect, depending on when you turn on the spigot:
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Start Collecting at: |
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Data source: Social Security Administration.
A Comprehensive Guide To Social Security After Divorce
Social Security can be overwhelming, especially if you’re unsure of what benefits you qualify for as … a divorced individual.
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Since Social Security benefits can make a big difference in your cash flow and income taxes in retirement, it is worthwhile to understand how this important benefit works. If you are divorced after being married at least 10 years, you can claim social security benefits on your ex-spouses work record. If youve been married less than 10 years, you cannot claim any social security based on your ex-spouses work history so its critical you dont finalize a divorce after 9 years of marriage without seriously thinking through the consequences.
Before jumping into the nitty gritty, lets cover the key highlights:
How do I qualify as an ex-spouse?
What if Ive been married and divorced more than once?
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Which Social Security Spousal Benefits Loopholes Are Still Open
So, which loopholes are still available for you to use? The Bipartisan Budget Act of 2015 closed both of the loopholes mentioned above, with only a few minor exceptions. Here is how Congress closed those loopholes using the Act. First, lets explore how the File and Suspend strategy was closed.
Under the old law, a person could file for benefits and then immediately suspend them. However, any other benefits based on that persons earnings record would continue. In effect, this allowed their spouse to continue receiving spousal benefits while the primary earners benefit continued to grow. Under the new law, any benefits associated with the primary beneficiarys account will also stop if they suspend their benefits. So, while a person can still suspend their own benefits, this suspension would also stop any spousal benefits that were being paid.
How Do Social Security Spousal Benefits Work
You’re eligible for spousal benefits if you’re married, divorced, or widowed, and your spouse is or was eligible for Social Security. Spouses and ex-spouses generally are eligible for up to half of the spouse’s entitlement. Widows and widowers can receive up to 100%.
You can claim benefits based on your own work history or on that of your spouse. You’ll automatically get the larger amount.
If you are no more than three months away from age 62, you can apply online or by phone. If you plan to put off applying to get the largest payment possible, wait until you’re no more than three months from full retirement age. That’s 66 or 67, depending on your year of birth.
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Social Security Spousal Benefits Explained
- Social Security spousal benefits can pay an eligible spouse 50% of the partners benefit if it is higher than his or her own benefit. Claims can begin at age 62 but may be worth more at full retirement age. Read our Social Security review to learn more.
Social security is complicated for individual filers, and being married can make it even more complicated. Thats because Social Security includes benefits for the spouse as well as the individual.
When an individual files for retirement benefits, that persons spouse may be eligible for a benefit based on the worker’s earnings according to the Social Security Administration.
In this Social Security review, we outline the rules for spousal benefits.
Wait As Long As You Can To Claim Your Benefits
âOptimizing your Social Security benefits can be life-changing.â
For each year beyond your full retirement age that you wait to claim your benefits, Social Security will bump up your payouts by 8% annually until you reach age 70, which is the maximum age for boosting benefits. A single woman who is entitled to a Social Security benefit of $18,000 yearly at age 67, for example, would see her annual benefit rise to $22,320 if she waited until age 70.3
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Spousal Social Security Benefit Basics
Spousal Social Security benefits are not available to everyone. So to know if this applies to you, check you and your spouses full retirement age benefit amount. If one of those benefits is less than half of the other, then you will be able to apply for spousal benefits.
For example, if your full retirement age benefit is $1,800 per month and your spouses is anything less than $900, then this applies to you.
And that is because with Social Security, you are entitled to receive the greater amount of either:
- Your Full Retirement Age amount. Again, this is just what you can easily find on your statement.
- Or, half of your spouses full retirement age amount.*
Theres an asterisk here because it is not necessarily that simple, well get into the details later. But if you do everything right you can get a spousal benefit up to 50% of your spouses benefit.
Then there are 2 basic requirements to qualify for spousal benefits:
- You must be at least age 62 and have begun your own benefits to be eligible to receive spousal benefits.
- And, your spouse must be receiving their benefits for you to get spousal benefits from them.
Again, these were the changes that we talked about in the first slide. They have not always been requirements, but these are the rules as of now.
In Come Cases Two Can Do A Lot Better Than One
When youre part of a couple, you make financial decisions together. Thats especially true for the critical decision about when to start collecting Social Security benefits, which can mean a lot of money over many years.
In a perfect world, everyone would wait until he or she turns 70 to claim benefits, even if it means having to sell stocks at a loss, because thats when you max out your benefits and every year you wait gets you an automatic 8% increase. Sometimes, though, taking Social Security at 62, when you first become eligible, can make sense, no matter what the Personal Finance Police tell you.
Those general rules of thumb still hold in claiming Social Security for couples. The rules are more straightforward since Congress ended the file and suspend strategy, a benefit-maximizing loophole big enough to drive an 18-wheeler through.
But there are some wrinkles you need to be aware of, especially if there are big gaps in age or income between you and your spouse.
The primary difference between filing individually and filing jointly is that, as Fidelity put it, each member of a couple can claim at different dates and may be eligible for spousal benefits.
Gather together the statements the Social Security Administration sends out three months before your birthday every year. It will give you a year-by-year record of your earnings and an estimate of future Social Security benefits.
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A Couple With Shorter Life Expectancies May Want To Claim Earlier
How it works: Benefits are available at age 62, and full retirement age is based on your birth year.
Who it may benefit: Couples planning on a shorter retirement period may want to consider claiming earlier. Generally, one member of a couple would need to live into their late 80s for the increased benefits from deferral to offset the benefits sacrificed from age 62 to 70. While a couple at age 65 can expect one spouse to live to be 85, on average, couples who cannot afford to wait or who have reasons to plan for a shorter retirement, may want to claim early.
Example: Carter is age 61 and expects to live to 77. He earns $70,000 per year. Caroline is 59 and expects to live until age 76. She earns $80,000 a year.
Considerations For Married Couples
When a married individual reaches their full retirement age and files a claim for benefits, their spouse becomes eligible for a spousal benefit. This allows the spouse to claim a benefit of up to 50% of the primary claimant’s benefit. This benefit cannot be claimed before age 62, however, and if the spouse were to claim it prior to their own full retirement age, the amount would be reduced.
It’s possible that the spousal benefit could be significantly greater than the spouse’s individual benefit. Ultimately, whichever is higher is what will be granted. For spouses who never worked and did not pay into Social Security, or who earned much less than the primary claimant, the spousal benefit is a great deal.
Imagine a couple, Henry and Lilly, who have both reached age 66, their full retirement age. Henry, the higher-earning spouse, is entitled to a primary insurance amount of $3,000 a month. Lilly’s primary insurance amount is only $1,100 a month as she spent a number of years out of the workforce, raising their children and volunteering for non-profit organizations. Her spousal benefit, however, would entitle her to an amount equal to half of Henry’s primary insurance amount: $1,500 a month.
Unlike the primary claimant’s benefit, which can increase 8% annually when deferred after full retirement age up until age 70, a spousal benefit is not entitled to those credits.
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Strategy For Divorced Spouses
If you have been divorced for at least two years, you can apply for spousal benefits if your marriage lasted 10 or more years. If, on the other hand, you are still married and considering a divorce, and are near retirement age, try to apply for spousal benefits before your divorce is final. If you have been married and divorced multiple times, you can choose to receive whichever spousal benefit is highest. Saving your ex-spouses Social Security numbers and dates of birth will make the enrollment process easier.
This Social Security Spousal Benefits Loophole Still Works
Certain Social Security benefits used to have ambiguous language that allowed individuals to take advantage of loopholes to receive additional retirement benefits on top of what they normally qualified for. The most aggressive of these loopholes were definitively closed by 2020, but the good news is that this social security spousal benefit loophole still works.
Prior to 2015, there were some pretty nifty loopholes to maximize your and your spouses Social Security benefits. Thanks to some ambiguous language regarding these benefits, you could take advantage of these loopholes to receive more retirement benefits than you were strictly eligible for.
One method, known as the claim then suspend method, allowed a worker to claim their benefits before full retirement age, then immediately suspend their benefits, therefore racking up retirement credits while still collecting the spousal benefit. Another strategy, the spouse then worker method, was to live off the lower-earning spouses benefit until the age of 70, at which point the primary wage earners much higher Social Security benefits could be collected.
These were considered aggressive claiming strategies by the Social Security Administration , which estimated that these tactics were mostly employed by more affluent individuals following the advice of financial planners. In response, Congress introduced the Bipartisan Budget Act of 2015 , effectively shutting down the exploitation of these loopholes.
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Avoiding The Gpo: The 60
If you’re a retired government employee who receives Social Security retirement benefits as a spouse or former spouse, you can avoid the GPO reduction.How? By working for at least the last 60 months of your career in a job in which you pay Social Security taxes.Take the case of Julie. For most of her career, she worked as a public school teacher. Because the school district offered her a pension at retirement, Social Security taxes were never withheld from Julie’s pay.Her husband, Bruce, works in the private sector and has paid Social Security taxes for the duration of his career. When they retire, both will claim Social Security benefits on Bruce’s earnings record.To avoid the GPO reduction to her spousal benefits, Julie retires early from her teaching position and takes a job at a tutoring center. She works in that position for 5½ years, and Social Security taxes are regularly withheld from her pay.The tutoring position is the last job Julie holds. Because she spent her last working 60 months paying Social Security taxes, the GPO won’t reduce her spousal benefits.
Why Doesn’t It Work If You Haven’t Reached Fra
If you apply for Social Security benefits before your full retirement age, you automatically qualify for and are given the higher benefit based either on your own earning record or 50 percent of your spouses full retirement age benefit.
You have more choices if you wait until FRA to apply, and if you were born on or before Jan. 1, 1954. You can apply for benefits and choose to begin collecting just a spousal benefit based on your spouses earnings record, your ex-spouse’s if you were married for at least 10 years and you haven’t remarried. Your own Social Security benefit would continue to accumulate delayed retirement credits until you reach age 70, then you can switch from taking the spousal benefit to taking your own benefit.
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