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Q: What’s the best way for my wife and me to maximize our household’s Social Security benefits? Should we wait until we both reach 70 before we apply for our retirement benefits? This would give us the 32% bump in monthly payments, yes?
Our facts and circumstances: I turn 66 this year and my wife turns 66 in 2017. My understanding is if I take a spousal benefit on her in 2017 then her Social Security benefit would not grow the extra 8% per year. My benefit at 66 is $2,000 per month and my wife’s benefit at 66 is $1,500. We do have other investments, pensions and I plan to work till at least 70. — Frank Burkeen, Colorado Springs
A: First the easy answers. One, you are correct. You and your spouse would receive a 32% raise by waiting until age 70 to collect individual benefits, says Rob Kron, head of investment and retirement education for BlackRock.
And two, you are also correct, says Kron, in pointing out that your wife would not be able to earn her “raise” if you were to collect spousal benefits on her earnings record. That’s a result of two major changes to Social Security laws passed last November in the Bipartisan Budget Act of 2015.
Kron put it this way: “To understand the impact, we need to first understand what is required for the husband to collect a spousal benefit. First, his spouse needs to file for her individual benefit. Second, he needs to be able to use a ‘restricted application’ to limit his benefit request to receive only the spousal benefit. Without the restricted application, he would be forced to collect his individual benefit first; and since it is larger than the spousal benefit, he would not be able to collect a spousal benefit.”
According to Kron, there were two changes included in last year's budget legislation, but only one negatively affects this couple: the new consequences for requesting a voluntary suspension of benefits after April 29, 2016. The change to restricted application doesn't affect them, as they were both at least 62 at the end of 2015.
Kron further notes that voluntary suspension allows a person who has filed for his/her individual benefit and reached full retirement age, or FRA, to request the suspension of his/her monthly benefit and instead earn the raise, or what is also called delayed retirement credits, or DRCs.
“One of the consequences to anyone suspending their benefit after April 29, 2016, is that spousal benefits being paid based on their work history will also be suspended,” says Kron. “Therefore, if his wife files for her benefit in order to make him eligible for a spousal benefit, she won't be able to suspend her benefit and maintain his eligibility. Hence his accurate statement that for him to collect a spousal benefit, his wife won't be able to earn her raise.”
As for waiting until you and your spouse turn 70 to collect benefits, Kron had this to say: “If both husband and wife anticipate longevity, then both waiting until 70 to collect individual benefits could yield the largest lifetime payout from Social Security.”
But to maximize the household’s overall Social benefit, you might need to use a benefit-boosting strategy: “I would suggest that the wife file a restricted application as soon as the husband turns 70 and files for his individual benefit. That way, she can collect a spousal benefit until she turns 70 and begins to collect her own benefit,” says Kron.
Another thing to consider: If your longevity is a concern, you may want to consider having your wife collect her individual benefit now, and you, the husband, file a restricted application to claim spousal benefits and then switch to your individual benefit at 70, says Kron.
“The idea behind this strategy is to have the wife start right away, with the expectation that at some point in the future she will be switching to a higher survivor benefit,” he says. “Therefore, the more money she can receive from the system prior to that happening, the better.”
“Of course,” says Kron, “any decision should be reviewed within the context of their larger retirement-income plan, as taxation and other sources of income are important considerations.”
One last note: Consider using the online Social Security calculators at BlackRock's website (registration required), Financial Engine's website, and/or AARP’s website to learn the financial outcomes of the various strategies you could pursue.
Chuck Reynolds
Contributor
