Pump Up Your Social Security Income

Here is an interesting strategy to increase your Social Security benefits from Investor’s Business Daily:

Social Security: Spousal Benefit Boosts Your Check

BY PAUL KATZEFF, INVESTOR’S BUSINESS DAILY

07/17/2015 05:38 PM ET

 

One of the most appealing strategies for receiving your monthly Social Security check involves the spousal benefit. This approach is designed to provide a higher benefit to someone who did not work, or whose spouse has a much higher earnings history, than that lower-earning spouse would otherwise get by filing for his or her own benefits.

This can work several ways. One method, which can turbocharge your retirement planning, is this:

When the higher earning spouse reaches what the Social Security Administration calls full retirement age (FRA), he can file to begin benefits, but immediately suspend his claim before receiving any checks.

Why? The reason begins with the fact that FRA is not the age at which your benefits peak in size. If you were born between 1943 and 1954, for instance, your FRA is age 66. Your benefit at age 70 will be larger than your benefit at FRA, age 66.

What FRA does refer to is the age at which your benefits will not be cut even if your earned income from work exceeds a limit specified by law. In 2015, you generally lose $1 in benefits for every $2 you earn above $15,720.

Let’s go back to the spousal benefit. That higher earning spouse who files for benefits but suspends his claim right away will actually delay the real start of benefits as long as possible, perhaps until age 70. By doing that, his benefits get bigger. Meanwhile, when the lower-earning spouse reaches her FRA, she files for benefits.

Think Long-Term

She automatically gets the spousal benefits because they are higher. And by waiting to file until her FRA, her benefits will be 50% of her spouse’s FRA benefits. If she had filed earlier, her benefit would have been reduced.

By doing all of this, she maximizes her monthly benefits, says Judith Ward, a senior financial planner for T. Rowe Price. Since her spouse had filed and suspended his own claim, then as a couple they will maximize their lifetime benefits. He will resume his own claim in the future — perhaps at age 70.

But wait — what if the lower-earning spouse has a work record that would provide a chance for her benefits to be greater than 50% of her spouse’s?

Waiting until her FRA, she could start receiving checks as a spousal benefit, which would let her own future benefits continue to grow. They will peak at age 70, under Social Security formulas.

Then, when both spouses each turn 70, they can file for their own retirement benefits. This two-step process maximizes the monthly benefit for the couple.

And by filing for her own benefits at age 70, the lower earning spouse will switch to a bigger check. In the meantime, by waiting until FRA, the lower earning spouse gets the largest allowable spousal benefit.

It’s important for her to wait until her FRA to start this process. If she, the lower earning spouse, files prior to FRA, she will get the higher of her own benefit or the spousal benefit. But she will not have the opportunity to specify a spousal benefit and delay her own benefit. That would deny the couple their best chance for maximizing lifetime benefits.

“This strategy can provide a significant amount of income for couples in retirement, especially where one spouse has a low-earning work history,” Ward said.

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About Charles Roberts, CFP®

Founder & CEO, Financial Freedom Planners™
This entry was posted in Retirement Planning and tagged , , , , , , , . Bookmark the permalink.

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