How Do I Maximize Social Security Income for My Spouse?
Social Security income is meant to provide a base income during retirement and was never designed to replace all of your income. We have seen numerous people make filing mistakes that could cost them tens of thousands of dollars during their lifetime. I am going to discuss the various strategies to maximize income for yourself and your spouse.
Delaying Social Security Benefits
This strategy is pretty basic but can make all of the sense in the world for some couples. Instead of filing for your Social Security income at your Full Retirement Age (FRA) of 66, you can delay income as late as age 70. This delay comes with a big payoff if you plan on living a long life. Social Security will increase your income by 8% annually for each year you delay benefits. This would be a cumulative 32% increase for anyone born between 1943-1954 since they have a FRA of 66. The Full Retirement Age is 67 for anyone born 1960 or later which means the maximum delay benefit would be 24% since you can only defer until age 70. The FRA for anyone born between 1955 and 1959 is prorated an additional 2 months between age 66 and 67.
Not only are you increasing your monthly income during retirement but if you are the highest earning spouse, you are increasing the monthly income that your spouse receives after your death. When one spouse dies, the surviving spouse can collect the higher of their own personal benefit or their spouse's benefit. The highest wage earner needs to not only consider their lifetime income but the potential lifespan of their spouse before deciding which age to begin benefits.
File and Suspend Strategy
You must be at your Full Retirement Age to utilize this strategy. "File and Suspend" means filing for your social security benefits at your Full Retirement Age of 66 or 67 but delaying the income so your benefit increases by 8% annually. We advise many clients that have a non-working spouse to utilize this strategy because it can significantly increase the amount of income your family receives from social security over your lifetimes.
Filing and suspending your benefit will allow your spouse to collect spousal social security benefits. Spousal benefits will pay 50% of the primary wage earners benefit. For example, if the primary wage earners social security income at age 66 would be $2,200 per month, their spouse can collect benefits of $1,100 per month without affecting the spouse's own social security benefit. This allows the spouse to delay taking his or her personal benefit at age 66 or 67 and allow their benefit to also grow an additional 8% annually until age 70.
Claim Now, Claim More Later Strategy
This strategy is designed for couples who both qualify for social security benefits on their own working records. You must be currently married and at least one person must be at full retirement age or older. Once you reach full retirement age, you can apply for spousal benefits only and delay taking your benefit until age 70 to maximize your income. We consider this "free" money because your personal benefit and your spouse’s benefit are both growing by 8% annually while you are receiving the spousal benefit income.
You must clarify to the Social Security Administration on your application that you are only applying for spousal benefits and not your own retirement income benefit. At age 70, you will probably want to switch to your personal benefit for maximum income. If you have a very minimal earnings history, the spousal benefits could be higher than your own benefit so you would not switch to your benefit at age 70 in that scenario. You are never allowed to collect spousal benefits and your own benefit at the same time.
File and Suspend + Claim Now, Claim More Later Strategy
If a working couple is close in age and both qualify for their own benefits, this can be an amazing strategy. Both workers will need to be at least at their Full Retirement Age. The older spouse will claim their benefit and immediately suspend them, allowing their benefit to grow by an additional 8% annually. When the younger spouse turns Full Retirement Age, they can file for a spousal only benefit allowing their own retirement benefit to grow by 8% annually until age 70. The younger spouse will receive 50% of the older spouse primary benefit until age 70. At age 70, the younger spouse will want to switch to their own benefit which is likely higher than the 50% spousal benefit.
When both spouses are age 70, they will both be receiving an additional 24%-32% additional income than they would have qualified for at their Full Retirement Age of 66 or 67. This scenario maximizes spousal benefits and total household social security income if they live into their 80's which is becoming more and more likely.
In summary, all of these strategies need to factor in your current health, expected longevity, current income, net worth and your availability of liquid assets. It may make financial sense to delay benefits until age 70, but if you don't have enough income and other resources to continue paying your bills than it could be a poor decision. You should consult a financial advisor or discuss your options with the Social Security Administration before making this important final decision.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.