One of the biggest questions on our client’s minds is “when can I retire?” followed by a second question, “do I have enough savings to retire?”. Our analysis to determine the answers to these questions always considers strategies to maximize Social Security income. Many clients don’t know these strategies since options for maxing Social Security benefits are poorly publicized by the Social Security Administration. Unfortunately, agency representatives are not always fully aware of the various strategies and exceptions and may not know what is most appropriate for your specific circumstances. With careful retirement planning which employs the optimum Social Security claiming strategy, you can maximize the return for your household and improve your retirement success.
Already Taking Benefits
What if you are already taking your benefits and now realize it was the wrong strategy? If you’re within the first 12 months of claiming and you have enough cash available, you can withdraw your application and repay all the benefits you’ve received so far. By reversing your claim decision, it is as if you never claimed in the first place, and this could mean you can claim a tax refund or credit for any taxes you paid on those benefits.
If more than 12 months have transpired, all is not lost. An alternative strategy is to voluntarily suspend your Social Security benefits to boost your future benefits. For each month of suspension, you can earn delayed retirement credits worth two-thirds of 1% per month—or 8% per year.
Consider Your Spouse and Minor Children
The conventional wisdom of postponing benefits until age 70 if you can afford to may not be the best option. We see many blended families where one spouse is 60 and they have minor children at home, qualifying the household to receive dependent benefits. The dependent child benefit is equal to half of the claiming parent’s full retirement benefit, even if the parent claims early. In addition, a younger spouse may also be eligible for a spousal benefit. These additional household benefits could potentially offset the lower benefit you receive by filing early.
Divorced Spousal Benefits
If you are divorced, you are eligible for spousal benefits if both you and your spouse are at least 62 and your marriage lasted 10 years or more. Unlike spousal benefits when married, you can claim even if your ex-spouse has not yet filed for benefits when divorced.
A divorced spouse who waits until full retirement age can claim a spousal benefit that will be 50 percent of their ex-spouse’s full benefit. The benefit is reduced by a certain percentage for each month you collect before then. If you have two ex-spouses where the marriage lasted over ten years, you can choose whose benefit to claim against.
Widow/Widower Survivor Benefits
If you lost your spouse before retirement, you may be able to receive a survivor benefit first, then switch to your retirement benefit later, or vice versa. Dr. Laura’s research on widowhood has highlighted how important these benefits can be for a widow (also important to the widower). Recently she was interviewed by the NY Times on protecting widows but this pertains to either surviving spouse: https://www.nytimes.com/2021/06/28/business/retirement/women-social-security-retirement.html. A surviving spouse who claims the survivor benefit at their full retirement age is eligible for 100 percent of the benefit their late spouse was receiving or was eligible to receive. A surviving spouse can claim as early as age 60 (50 if she is disabled), but their benefit will be reduced permanently for each month they claim before their full retirement age, so it is important to consider all options before claiming early.
A surviving spouse has several options such as claiming their own smaller retirement benefit at 62 to create an immediate income stream and then switching to the larger survivor benefit at 66 or 67 which can provide a higher income later. But if the surviving spouse’s benefits will be higher at 70, the reverse might make more sense since survivor benefits do not accrue delayed retirement credits.”
There is some nuance here that can be confusing. Survivor benefits, if collected at full retirement age or later, are worth 100% of what the deceased worker received, including any delayed retirement, credits the worker may have accrued at the time of death, or less if they had collected early. If the deceased had not collected yet it is the benefit, they were entitled to receive at full retirement age. However, it is important to understand that a surviving spouse cannot increase the amount of their survivor benefit by waiting until age 70 to collect it.
Whether married, single, divorced, or widowed, the decision on when to take benefits in the household should consider this. If married, coordinating your benefits with your spouse’s benefits can help you both get the most out of your Social Security payments. It could make sense for both spouses to claim on the same spouse’s earnings record if one spouse’s benefits are significantly higher. The spouse with the lower benefits can claim first based on his or her own earnings record and apply for spousal benefits later when the spouse with the higher benefits starts to collect.
Most married couples should maximize future survivor benefits. By delaying the higher earner’s Social Security benefits until age 70, they lock in the maximum retirement benefit for the household and consequently, the biggest survivor benefit for whoever survives the other. Remember you will lose one of the benefits upon death which can create hardship for households relying on these benefits for their standard of living so this strategy maximizes future benefits.
Overall, it is also important to know that there are restrictions and exceptions which apply to these different strategies, so it is important to educate yourself. Know the strategies which can boost your household’s benefits, whether you are married, single, divorced, widowed, or still have minor children at home, and consider all future scenarios when planning your claiming strategy. Social Security provides a critical foundation of income for your retirement and should be a necessary consideration in every comprehensive financial plan.
The video that accompanies this blog is below;