Part 2 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 two of this three-part article on Social Security we will consider how marital status impacts your social security strategy.
Love and Marriage
If you’re single, timing is everything when it comes to filing for Social Security. Delaying earns you an extra 8% for every year you wait past your “full retirement age” (FRA) until age 70, plus whatever the COLA adjustments were for the ensuing years.
Married couples need to do a little more math in order to maximize their total Social Security benefits. Let’s take a look at a few of the more common strategies. Your advisor can run hypothetical scenarios with your specific numbers to help you determine which filing strategy puts you ahead of the game.
Main Breadwinner Delays Benefits
If the higher earner delays filing, not only will that person get an increased benefit for every year they wait, their spouse will, too, should they outlive the main breadwinner. Too many people focus on their individual benefit without considering the added twist of survivor benefits. But if you take that into account in your calculations, you may find that it makes more sense for the lower earner to start benefits as soon as you need income, while the higher earner racks up delayed retirement credits. When the higher earner passes away, the lower earning spouse will step up to the higher survivor benefits, which will add a level of income protection for life.
Maximize Spousal Benefit
The idea behind this strategy is to delay the higher earner’s benefit. Since spousal payouts don’t benefit from delayed credits, the higher earner may wish to start their benefit at FRA (66 in his case), allowing the lower earner to start their spousal benefit. If a higher earner is older than the lower earner, they would want to delay their own benefit until the lower earner reaches FRA, thus benefiting from delayed retirement credits and maximizing their spousal benefit.
But remember the restricted application twist mentioned in part one of this series. Those born before Jan. 1, 1954 get a choice between filing for their own benefits or spousal benefits when they reach FRA. Everyone else will be deemed to be applying for both and will automatically receive the higher of the two benefits.
For those who still qualify, here’s how a restricted application for spousal benefits works. Like with regular spousal benefits, the other spouse files for worker’s benefits first. The second spouse can apply for just spousal benefits at FRA, collect for several years until age 70, and then switch over to their own worker benefit, which will grow by 8% plus any cost-of-living adjustments every year they wait.
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.
Source: Prudential, ssa.gov
Content created by Raymond James for use by its financial advisors.