I hope you had a wonderful weekend. Today is National Vanilla Pudding Day! There had to be a day to mindlessly eat vanilla pudding and today is the day!
LRPC’s Monday Morning Minute for this week, “How Couples Can Max Out Their Social Security Benefits” (presented below) comes to you courtesy of Charles Schwab & Co. As an independent, objective Registered Investment Advisory firm, Lawton Retirement Plan Consultants, LLC has access to research from many sources. Be assured that I will share enlightening, useful information with you each week.
Bring yourself up-to-date on the recent changes in the law that relate to how couples may claim Social Security benefits. Learn how Schwab suggests couples maximize those benefits.
Have a wonderful week!
How Couples Can Max Out Their Social Security Benefits
By Carrie Schwab-Pomerantz, Charles Schwab & Co.
- While new Social Security rules have eliminated some options for couples, there are still workable strategies to maximize benefits.
- If you were born before January 1, 1954, you can still use the “restricted application” to file for a spousal benefit.
- Other strategies for maximizing overall benefits, including spousal and survivor benefits, vary based on relative age and earning records but are worth exploring.
The 2015 Budget Act dramatically shifted the landscape for couples attempting to maximize their Social Security benefits. As you’ve discovered, just when many of us had our plans in place, we’ve been forced to reevaluate. Fortunately, there are some strategies that still work. But before I get into those, let’s review what’s changed.
No more ‘file and suspend’
First, the old ‘file and suspend’ strategy is no longer available to new filers. In the past, one spouse could file for benefits — which allowed the other spouse to file for a spousal benefit — then suspend their own benefit to let it grow. No more. Now when a person suspends their own benefit, they also suspend spousal benefits. This effectively prevents one spouse from collecting benefits on their husband’s or wife’s record while the other spouse holds off in order to accrue delayed retirement credits. It was great while it lasted.
Further restrictions on a ‘restricted application’
The second related, but different, change impacts what is known as a ‘restricted application.’ For many years, this provision allowed a married person to collect a benefit based on their spouse’s work record rather their own record as long as their spouse had already filed. In this way, at Full Retirement Age (66 for those born between 1943 and 1954), a spouse could file for a spousal benefit only (a restricted application) and then switch to their own increased benefit at a later date.
This possibility hasn’t been completely eliminated, but whether or not you can use it depends on your age. If you were born before January 1, 1954, you’re in luck. The provision is still available to you. Anyone younger isn’t eligible.
Couple strategies that still work
So where does this leave us with the new rules? Unfortunately, there’s no one-size-fits-all recommendation. Each couple’s financial situation, birth dates, relative ages, anticipated longevity, and earnings records factor in.
Because of this complexity, it generally makes sense to consult with an advisor who specializes in Social Security benefits before deciding. In the meantime, here are a few guidelines to consider:
- A primary breadwinner should consider delaying filing to age 70. Assuming good health and the prospect of a long life, this makes sense for two reasons. First, it can eventually add up to a larger lifetime benefit. And second, it will mean an increased benefit for a surviving spouse.
- It may make sense for the lower earning spouse to file for their own benefit at Full Retirement Age (FRA). The tactics will vary, however, depending on birthdate. Here are a couple of examples:
1. Let’s say, as the lower earner, you file for benefits at your FRA. Since your husband turned 62 before the end of 2015, at his FRA he could file a restricted application for spousal benefits. He could then switch to his own higher benefit at age 70. Plus, since you waited until FRA to file for your own benefit, your benefit could increase if the spousal benefit were higher than your own benefit.
2. If, on the other hand, your husband had not turned 62 by the end of 2015, and wasn’t eligible to file a restricted application, it would still likely make sense for you to wait until at least your FRA to file for your own benefit and your husband to wait until age 70 to file. Your benefit could still increase to a potentially higher spousal benefit of 50% of his FRA benefit.
3. Should your husband pre-decease you, you would receive a higher survivor benefit by his delaying to age 70 in either case.
- If both partners have equivalent earnings records, it may make sense for both to delay filing until age 70. Provided that both anticipate a long life and can afford to postpone benefits, this would maximize both retirement benefits for themselves and survivor benefits for each other.
- Married couples with a single income face a different set of issues. Although health and anticipated longevity certainly come into play, it often makes sense for the breadwinner to postpone benefits until age 70. While the couple will forego spousal benefits until the earner files, it will allow for the largest possible retirement and survivor benefits. Other couples, however, may want the earner to file once the spouse reaches FRA, which is when the spousal benefit maxes out (the spouse would need to be at their FRA to be eligible to claim the maximum spousal benefit). In this case, though, they are forfeiting the highest survivor benefit.
No easy answers
While the new law in some ways simplified things, it’s still a complex and important decision. So I can certainly appreciate that many people may take one look at all this and want to run for cover. But I strongly advise every person approaching retirement age to stop and carefully assess their Social Security choices. Timing is important and there are still strategies — especially for couples — that can result in a higher overall benefit. Sit down with your advisor to help you make the best decision based on your situation.
Lawton Retirement Plan Consultants, LLC (LRPC) Monday Morning Minute is crafted to provide decision-makers with important information about the economy, investments and corporate retirement plans in a format that allows a reader to consume the information in less than 60 seconds. As an independent, objective investment adviser, LRPC has access to many sources of research and shares the best and most relevant information with its readers each week.
Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Adviser (RIA) providing investment advisory, fiduciary compliance, employee education, provider management and plan design services to retirement plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or firstname.lastname@example.org or visit the firm’s website at http://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.
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