Last month, we discussed the basics of Social Security and also discussed that married couples have several options when deciding when to take their benefits. This month, we will describe two strategies used by married couples to maximize benefits – the “file and suspend” strategy and the “claim now, claim more later” strategy.
As discussed last month, a person can delay filing for benefits at full retirement age (“FRA”) and receive an 8% increase for each year after FRA that he waits to start his benefits until reaching age 70. This could result in a 32% increase in the total amount of payments available throughout lifetime if FRA is 66 but he waits until 70 to receive benefits. Also remember, that if married, a spouse can draw their own benefit or ½ of their spouse’s benefit.
The “file and suspend” strategy works best where one spouse worked and the other did not work or rarely worked and will not be entitled to social security benefits or their amount will be small. It requires that one spouse be at (FRA). When the working spouse reaches FRA, he files for and immediately suspends receipt of benefits which allows his benefits to continue to grow at 8% per year until 70. Since he filed for benefits, his spouse can draw on his record and start receiving ½ of his benefit amount. Then, when he reaches 70, he can start receiving increased benefits.
For example, assume John and Jane are both at FRA. John worked outside the home and Jane was a homemaker. He is entitled to receive $1,000 a month in Social Security benefits but he wants to delay his benefits for 4 years so he can receive $1,320 a month, as opposed to $1,000 a month. However, if he simply delays his benefit, Jane will be unable to receive benefits because she has no work record of her own to draw on. By using the “file and suspend” strategy, John can file for his benefits, then immediately suspend his payments while allowing Jane to file to receive benefits immediately based on his work record. Then, when he reaches 70 he will receive the higher benefit amount.
The “claim now, claim more later” strategy can also boost a married couple’s return from Social Security. This strategy works by allowing one spouse to claim benefits early, while the other spouse, who is already at FRA, claims only spousal benefits, which allows his or her personal benefits to grow. For example, Jane claims her $2,000 benefit at the age of 62. Her husband, John, who is at FRA, files to receive only spousal benefits based on her record, which is equal to ½ of her benefit since he has already reached FRA. This allows John to receive income from his spousal benefit immediately, while still allowing his own benefit payments to grow.
Finally, by combining both strategies, a married couple can both increase their benefits. Both spouses must be at FRA for this to work. Assume Jane is the higher earner and she files for and immediately suspends benefits until age 70. John then files for and receives spousal benefits of ½ of Jane’s amount on her record. At age 70, Jane will claim her own benefits which will have grown by 8% per year and John will switch from spousal benefits to his own benefits which continued to grow at 8% per year.
As you can see, knowing when to file for Social Security benefits and which benefits to file for can be a confusing task. There are factors specific to certain individuals that exclude them from taking advantage of the above strategies or reasons why they may be better served by not using these strategies. Before making any decisions about taking your Social Security, you should always consult with someone well versed in these benefits and strategies. Failure to do so before making an election may impact the amount of income you will receive throughout your retirement years.