Most people think that there isn’t much they can do about the size of their current or future Social Security retirement checks. But that’s not true. Pre-retirees and retirees do have some control over their benefits. Five strategies that can help you get as much as possible from the Social Security system today…
Delay filing for benefits. One way to maximize the size of your future Social Security checks is to postpone filing for benefits until age 70.
- Example: Say you are eligible for a $1,000 monthly benefit when you retire at age 62. That’s only $12,000 a year. If you wait until age 70 to file, your initial monthly Social Security checks will increase by 76%, to $1,760. Your future cost-of-living increases will be higher, in dollar terms, as well.
- Downside: You can’t do this if you don’t have the savings or income to pay for the initial years of your retirement without Social Security retirement benefits. If you delay filing until age 70, but die before age 80, you will receive less in total benefits than you would have had you filed at age 62.
Boost spousal benefits with a “start-and-suspend” strategy. If you earned much more than your spouse during your working years, your spouse should consider filing for “spousal benefits” based on your earnings history once you start receiving benefits, rather than for benefits based on his/her own earnings.
- Example: Your spouse’s Social Security benefits statement says that he will receive $600 per month starting at full retirement age. Your benefits statements say that you will receive $1,800 per month starting at full retirement age. Rather than filing for benefits based on his own earning record, your spouse has the option of instead filing for spousal benefits, which are equal to 50% of your benefits — here, $900 per month. Unfortunately, having a spouse who intends to claim spousal benefits based on your earnings record can complicate your decision of when to file for benefits. You might wish to wait until age 70 to file for benefits in order to collect the maximum benefit, but your partner cannot file for spousal benefits based on your earnings until you file for your own benefits. Additionally, while your future wage earner benefits continue to climb at around 8% each year as long as you postpone the start of benefits up to age 70, your partner’s future monthly spousal benefit checks will not continue to increase once your spouse reaches what the government calls “full” retirement age. This is between age 65 and 67, depending on the year of your partner’s birth.
- Income-boosting solution: File for your benefits when your spouse reaches full retirement age, then immediately suspend your benefits by filing SSA Form 521, Request for Withdrawal of Application, with the Social Security Administration to request a “voluntary suspension” of benefits. (You can find the form at www.ssa.gov or by calling 800-772-1213.) Your partner can claim spousal benefits on your suspended account, but the size of your future monthly checks will continue to grow as if you had not yet filed for benefits at all. End the suspension by contacting the SSA again by age 70, the point at which you will collect the maximum benefit.
Leap from spousal benefits to wage earner benefits. As described above, a married person can file for benefits based on his own earnings history… or for spousal benefits based on the spouse’s earning history. But few people realize that there’s a third option — while you can’t file for both at the same time, you can file first for one and later for the other. Doing so could be your best alternative if you and your partner earned roughly comparable amounts during your careers.
- Strategy: One spouse — preferably the older spouse if there is an age difference — files for benefits at his full retirement age. When the other spouse reaches her full retirement age, she files for spousal benefits. By delaying the start of her own benefits, this second spouse allows her Social Security benefits to continue to grow at 8% per year, as if she were not receiving any benefits at all. Next step: This second spouse switches to her own benefits upon turning 70, when the monthly checks reach their maximum. This strategy is particularly beneficial when the spouse who “switches” has reason to expect an unusually long lifespan, perhaps because of excellent health or family history. The longer this spouse lives, the greater the advantage of maximizing her monthly checks by delaying the start of benefits until age 70.
- Example: Let’s say you and your spouse would receive $1,000 apiece per month from Social Security if you both filed for benefits based on your own earnings at your full retirement age of 66. Instead, your partner files for benefits at 66, but you claim spousal benefits based on your partner’s earnings. This reduces your monthly check to $500 — half of your partner’s benefit. At age 70, you file for your own benefits. Waiting those four years to file on your own earnings increases your monthly check by eight percentage points per year, to $1,320. As a couple, you’ll come out $14,400 ahead if the “switching” spouse lives to age 80… and $52,800 ahead if the switching spouse lives to age 90.
- Caution: This strategy should not be implemented prior to the switching spouse’s full retirement age. If you file for spousal benefits any earlier, your monthly Social Security checks will be permanently reduced.
Know the rules about remarrying. A divorced person is entitled to claim spousal benefits based on his former spouse’s earnings, assuming the marriage lasted at least 10 years. Remarry before age 60 (or age 50 if you are disabled), however, and you lose the right to claim spousal benefits from the previous marriage. You will be eligible for spousal benefits based only on your new partner’s earnings.
- Strategy: Consider delaying remarriage until after you turn 60 if your former spouse earned more than your new one and much more than you. If you remarry at age 60 or older, you can claim spousal benefits based on the earnings of your current partner or of a previous partner to whom you were married for at least 10 years, whichever you prefer.
Get an interest-free loan from the Social Security Administration. Would you rather get your hands on your Social Security benefits as soon as possible or maximize your monthly benefit checks by waiting to file? It’s possible to do both.
- Strategy: File for benefits as soon as you retire, and collect them. But then, before you turn age 70, file SSA Form 521 and repay the benefits that you have received. Then refile for benefits at age 70. This strategy will give you access to your benefits in your 60s… and you will receive maximum monthly benefit checks after age 70, the same as you would have if you had never filed the first time. The Social Security Administration does not charge interest or penalties for using this claim-and-repay strategy, so it’s like getting a loan with a 0% interest rate. If you invest your Social Security checks during your 60s, any profit you earn is yours to keep (minus the usual taxes on investment profits, of course).
- Warning: If, before you turn 70, you can’t afford to pay back the benefits you have received, you will be stuck with the lower monthly benefit checks for life.