But in spite of my being closely aligned with this process for the past 15 months, I’m still confused by the myriad of ways to extract the most you can from the system. How are old are you now, have one of you started taking benefits already, how different are your ages, does one of you have a divorced spouse who has not yet started taking benefits and earned more than you did but you are not yet remarried?
The point is there is typically a lot more money on the table for you than appears at first glance. Just because you can start taking benefits based on YOUR history as soon as you reach age 62 is not necessarily the best decision. But it might be.
by Miriam Rozen AUG 12, 2014
Peg Eddy, a founder of San Diego-based Creative Capital Management, joins the ranks of others advisors who stress spouses should coordinate when they “trot down” to their local Social Security agency branch to make sure they’ve calculated a schedule accurately and most cost effectively.
Here’s the example, Eddy wants them to consider: Both spouses in a couple worked and earned Social Security credits, each in their own accounts. Both plan to defer seeking Social Security benefits until they reach 70 so they may each earn the 8% annual return the government promises to those who wait.
But nonetheless, that couple should not overlook the window of opportunity for spousal benefits for one spouse before full retirement age, Eddy warns. After after reaching full retirement, between ages 66 and 67, spousal benefits are available under the current rules for one spouse per couple, without jeopardizing maximized pay outs for both spouses at age 70.
Assuming the couple is the same age, or the higher earning spouse is older, at full retirment the higher earning spouse applies for Social Security retirement benefits but then requests to have the payments suspended so he or she can continue to earn delayed retirement credits (that 8%) until 70.
Meanwhile, the other spouse, when he or she reaches full retirement, applies for the spousal benefits without requesting his or her own work-earned benefits. The spouse requesting the spousal benefits may also continue working and still receive some benefits. But, as the government agency notes on its own website: “Only one member of a couple can apply for retirement benefits and have payments suspended so his or her current spouse can collect benefits.”
Financial advisors must factor in the age and pre-retirement income levels of each spouse before calculating who should apply for and then defer benefits and who should claim spousal benefits at full retirement between age 66 and 67. The higher the pre-retirement income, the higher the spousal benefit, but also significant are the ages of each spouse since that will determine the number of years he or she will earn spousal benefits before applying for his or her own earned Social Security benefits.
“It is legal and each spouse maximizes benefits,” says Eddy. She typically tells clients “make an appointment and visit the Social Security office in person” before they reach full retirement so they verify all the timing.
Miriam Rozen, a Financial Planning contributing writer, is a staff reporter at Texas Lawyer in Dallas.