Deciding when to begin receiving Social Security benefits is a major financial issue for anyone approaching retirement. There is a tradeoff between the amount of the monthly benefit and the number of payments you will receive. Most people know that beginning benefits prior to your full retirement age (currently age 66 and increasing to 67 for anyone born after 1960) will provide fewer dollars on a monthly basis. Delaying the receipt of benefits until 70 generates the maximum level of monthly benefits.

There are two strategies that a couple can consider implementing that can generate superior results to the traditional method of claiming benefits at a given age and collecting benefits for the remainder of their lives. The key to understanding the strategies is to recognize that married couples may qualify for retirement benefits based on their own earnings record, and/or for spousal benefits based on their spouse’s earnings record. In addition, a surviving spouse may qualify for widow or widower’s benefits based on what his or her spouse was receiving, or was entitled to receive, at the time of their death.

The following approaches should be considered for boosting both your Social Security retirement income and income for your surviving spouse. They can also be used by divorced individuals subject to certain conditions that will not be covered in this article.

File and Suspend

Generally, a husband or wife is entitled to receive the higher of his or her own Social Security retirement benefit (a worker’s benefit) or as much as 50% of what his or her spouse is entitled to receive at full retirement age (a spousal benefit). The spousal benefit, however, cannot be received until the spouse begins receiving retirement benefits. Fortunately, there is an exception–someone who has reached full retirement age but who does not want to begin collecting retirement benefits right away may choose to file an application for retirement benefits, then immediately request to have those benefits suspended.  This “file and suspend” strategy allows his or her eligible spouse to file for spousal benefits.

This strategy is most commonly used when one spouse has much lower lifetime earnings, and thus will receive a higher retirement benefit based on his or her spouse’s earnings record than on his or her own earnings record. Using this strategy can potentially boost retirement income in three ways:

  1. The spouse with higher earnings who has suspended benefits can accrue delayed retirement credits at a rate of 8% per year (the rate for anyone born in 1943 or later) up until age 70, thereby increasing his or her retirement benefit by as much as 32%.
  2. The spouse with lower earnings can immediately claim a higher (spousal) benefit.
  3. Any survivor’s benefit available to the lower-earning spouse will also increase because a surviving spouse generally receives a benefit equal to 100% of the monthly retirement benefit the other spouse was receiving (or was entitled to receive) at the time of his or her death.

Here is an example: Shirley is about to reach her full retirement age of 66, but she wants to postpone filing for Social Security benefits so that she can increase her monthly retirement benefit from $2,000 at full retirement age to $2,640 at age 70 (32% more). However, her husband Lou (who has had substantially lower lifetime earnings) wants to retire in a few months at his full retirement age (also 66). He will be eligible for a higher monthly spousal benefit based on Shirley’s work record than his own–$1,000 vs. $700.

So that Lou can receive the higher spousal benefit as soon as he retires, Shirley files an application for benefits, but then immediately suspends it. Shirley can then earn delayed retirement credits, resulting in a higher retirement benefit for her at age 70 and a higher widower’s benefit for Lou in the event of her death.

File for One Benefit, Then the Other

Another strategy that can be used to increase household income for retirees is to have one spouse initially file for spousal benefits and then switch to his or her own higher retirement benefit later. Once a spouse reaches full retirement age, they are eligible for a retirement benefit based on their own earnings record or a spousal benefit based on their spouse’s earnings record. To optimize the potential income, he or she can file a restricted application for spousal benefits, then delay applying for retirement benefits on his or her own earnings record (up until age 70). By waiting until age 70 to claim their own retirement benefit, they will earn delayed retirement credits. This will help to maximize survivor’s income as well as retirement income, because the surviving spouse will be eligible for the greater of his or her own benefit or 100% of the spouse’s benefit.

This strategy can be used in a variety of scenarios, but here’s one hypothetical example that illustrates how it might be used when both spouses have substantial earnings and want to begin receiving some Social Security income at age 66. Julie files for her Social Security retirement benefit of $2,400 per month at age 66 (based on her own earnings record), but her husband Geoff wants to wait until age 70 to file. At age 66 (his full retirement age) Geoff applies for spousal benefits based on Julie’s earnings record (Julie has already filed for benefits) and receives 50% of Julie’s benefit amount ($1,200 per month). He then delays applying for benefits based on his own earnings record ($2,100 per month at full retirement age) so that he can earn delayed retirement credits. At age 70, Geoff switches from collecting a spousal benefit to his own larger worker’s retirement benefit of $2,772 per month (32% higher than at age 66). This not only increases Julie and Geoff’s household income but also enables Julie to receive a larger survivor’s benefit in the event of Geoff’s death.

Key Points

  • Deciding when to begin receiving Social Security benefits is a complicated decision. You need to consider a number of scenarios and take into account factors such as spouses’ ages, estimated benefit entitlements, and life expectancies. Oak Wealth Advisors is happy to explain your options.
  • Spousal or survivor’s benefits are generally reduced by a certain percentage if received before full retirement age.
  • Using the file-and-suspend strategy may not be advantageous when one spouse is in poor health or when Social Security income is needed immediately.
  • The receipt of Social Security benefits while still working should be avoided.  In addition to increasing the likelihood that the benefits will be taxable, they may need to be repaid to the government if too much income is earned.

This update is intended for the use of Oak Wealth Advisors LLC clients. This update should not be viewed as personalized investment or financial planning advice from Oak Wealth Advisors LLC. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to their individual situation, they are encouraged to consult Oak Wealth Advisors LLC. Past performance does not guarantee future results and all investments should be scrutinized before being implemented in a portfolio.