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As a Certified Financial Planner, I run a practice specializing in guiding families to and through retirement. A question we almost always hear is, “When should I take my Social Security?”
The best answer to that question often depends on the client’s personal situation, but clients are often unaware of three common scenarios that may lead them to leave money on the table.
This could be anywhere between 66 and 67 today, depending on their birthdates. Some clients are willing to wait until age 70 to “turn on” their benefits. They realize their benefits increase by 8% every year that they wait, and they are willing to sacrifice the benefits from age 66 or 67 to age 70 to receive the higher payout for the rest of their lives.
In this process, an almost hidden feature, called the spousal benefit, is often overlooked. The spousal benefit is thought of as a benefit for a non-working spouse. A spouse who never worked can still collect 50% of the working spouse’s benefit. The non-working spouse can claim it once the working spouse has filed for benefits. What people don’t realize is that if both spouses are working and are eligible for their own benefits, the spousal benefit remains. You might not think you want it, because it’s less than your own benefit based on your own working record. The surprise is that Social Security will pay you the spousal benefit by itself, while you wait until age 70 to collect your own benefit.
Our most common recommendation for a married working couple is that one file for their own benefits at normal retirement age and the other spouse file for spousal benefits only, also at their full retirement age (age 66–67). This allows one spouse to defer claiming their own benefits, which continue to grow at 8% per year. Doing this allows a spousal benefit to be paid for three to four years—a benefit that could easily have been missed. The most important thing to remember is that nobody should file for benefits early.
The Divorced Applicant
The benefit for a divorced individual is frequently overlooked because the marriage may have ended long ago or the applicant may simply want nothing to do with their former spouse.
The first thing I always tell people is that this will have no impact at all on their former spouse’s benefits. In fact, the former spouse won’t even know that you are taking the benefit. They actually have the right to use the same strategy based on your record!
What people don’t realize is that if both spouses are working & are eligible for their own benefits, the spousal benefit remains.
As long as the individual was married for 10 years, has been divorced two years and is not currently married, that individual is eligible for a divorced spousal benefit based on their former spouse’s earnings record. The only catch: The former spouse needs to be age 62 or older when the divorced individual files for spousal benefits.
We frequently recommend that our clients wait until their full retirement age (age 66–67) before they file an application for divorced spousal benefits, thereby delaying their own benefits to age 70, allowing their own benefits to increase by 8% per year. Again, you are paid a spousal benefit for a few years while your benefit maxes out at age 70.
You must wait until your full retirement age for this strategy to work. If you file early, you are deemed to have applied for both simultaneously.
The Widowed Applicant
The same strategy applies in the case of survivor benefits. If your spouse is deceased and you were married at least nine months (except in the case of an accident), you may claim survivor benefits separately from your own personal retirement benefits. The rules are a little different for a widow or widower, but our most frequent advice is similar to that in the prior two scenarios: We usually recommend the individual claim survivor benefits at full retirement age and then their own benefits at age 70. Again, you are getting paid while waiting for your own benefits to max out.
Final Thoughts
As of 10/29/2015, a budget bill has passed the House and Senate that will make significant changes to the strategies discussed in this article. Until this is resolved, please use great care making decisions regarding your benefits. These three scenarios are presented to make you aware of Social Security claiming strategies that are currently available and frequently missed. They are not intended to serve as personal advice. The goal of the article is to help you realize that there may be more money in the system for you than you thought. Many nuances and individual circumstances will determine what may be the right strategy for you. Contact a financial planner or a Social Security office to see how the rules may affect you.
Mr. Baldwin
Samuel Baldwin, CFP, AIF, is a partner at Spencer Financial LLC in Sudbury, Mass. Registered Representative/Securities and Investment Advisory Services are offered through Signator Investors Inc., member FINRA, SIPC, a Registered Investment Advisor, in Andover, Mass. Spencer Financial LLC is independent of Signator Investors Inc. and any of its affiliated companies.
