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Part 1 of a 3 part series

Social Security is complicated. This world of confusion stems from all the factors that have to be accounted for, including your age, income, marital status, health and life expectancy. With Social Security accounting for nearly 40% of most Americans’ retirement income, it’s important to get your filing decision right or as close to it as possible.

Don’t worry, it can be done. Specialized software can help illustrate the likelihood and potential impact of various choices, but you’ll want to start the planning process well before you file a claim. Preparation is key.

In part one of this three-part article on Social Security we will explore the 3 main types of benefits.

1. Benefits for Workers

You must have worked and contributed to the system for at least 40 quarters to be entitled to what’s known as your Primary Insurance Amount (PIA) at “full retirement age” (FRA), somewhere between 66 and 67, depending on the year you were born. You can file as early as 62, but be warned, you’ll be locking in 25% lower payments for life if you do. File after FRA and you start racking up delayed retirement credits. What does that mean? For every year you wait to file after you reach FRA, you’ll get an 8% raise in benefits. Even better, adjustments for cost of living (think inflation-fighting protection) also get factored in and will compound over time.

2. Benefits for Spouses

Spousal benefits offer your spouse steady income based on your work record – a boon, especially for spouses who didn’t work or were the secondary breadwinner. Your spouse can start collecting at age 62, but you must have filed for benefits first. Spousal benefits, unlike the worker benefit, do not earn delayed retirement credits after FRA, but could incur reductions if you take spousal benefits before your own FRA.

Let's illustrate some of these benefits with an example. Jeannie is married to Tony, who made significantly more during his career. Both are 62 and eligible for benefits. Jeannie may be able to claim on Tony’s record, but first we need to figure out what her own PIA would be at her FRA of 66. If Jeannie’s PIA is less than half of Tony’s, then she qualifies for spousal benefits, but only if Tony files for benefits first. Then she would receive a spousal benefit that equals half of Tony’s PIA minus her own. In reality, she’ll receive two benefits – her own worker benefit plus the spousal benefit. Tony’s PIA is $3,000 a month at 66, his FRA. Jeannie’s PIA is $1,000 a month. When they both file at age 66, Tony will receive $3,000 and Jeannie will receive $1,500 comprised of her own record plus the additional spousal benefit, so their household monthly benefit would be $4,500.

If the higher earner files early:

Here is where it gets a bit more complicated. If Tony files before FRA at 66, he permanently reduces his monthly benefit. But Jeannie could wait until her 66th birthday to start benefits and would still receive the full $1,500. Spousal benefits don’t get reduced if the higher earner files early, nor do they grow if the higher earner delays filing past FRA.

But there’s a twist. Once Tony files, Jeannie can’t pick and choose one benefit over the other. Those born before Jan. 1, 1954 do get the choice, however, using a strategy commonly known as a restricted application, if they wait until full retirement age to file. Jeannie was born a little later, so she’ll have to claim both her worker and her spousal benefits.

If the lower earner files early:

Remember, spouses cannot start spousal benefits until the higher earner files first. So if Jeannie wants the reliability of Social Security income before Tony does, she can file for only her own worker benefits, and those will be subject to a reduction if she files before FRA. Once Tony files at age 66, she’ll get her spousal benefit, too.

Finding the Right Path for You

Even though the Bipartisan Budget Act of 2015 restricted the use of certain popular Social Security claiming strategies, you still have options to help you and/or your spouse maximize your benefits. Remember, there’s no one “best” strategy for anyone. The right strategy for you depends on your PIA and that of your spouse, as well as your health and financial status.

You can find out your expected Primary Insurance Amount (PIA) by signing up for a Social Security account and monitoring your estimated benefits. You can run what-if scenarios with your advisor to map out just what will happen if you file at 62, 66 or 70; what could happen if one or both of you fall ill or any combination of key factors. The point is the best answer may not be what you first thought.

Sources: Prudential,

Content created by Raymond James for use by its financial advisors.

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