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Social Security Strategies for Couples: Claim Now, Claim More Later
In a previous article on accessing Social Security entitlements we looked at the file and suspend strategy, which rewards spouses who delay receiving full benefits. Next up is a strategy called claim now, claim more later, which requires communication and cooperation between husband and wife as they strive to achieve the greatest lifetime cumulative payments.
We’ve already established that there is a high probability that Social Security is going to be there when you need it, but it is still one of those factors in life that is largely beyond your individual control. Even so, couples that are planning for a meaningful retirement should take these strategies into consideration.
We urge you to consult with your wealth advisor before making any Social Security decisions, as there is much more to consider than we can cover in this article or series of articles.
File and suspend is typically best for married couples where the lower earning spouse has a retirement benefit that is less than one-third of the higher earning spouse's benefit; claim now, claim more later is best when a couple has more equal individual retirement benefits.
How the claim now, claim more later strategy works
Instead of suspending payments, the claim now, claim more later strategy restricts them so they can continue growing, to be collected at a later date. A lesser spousal benefit is claimed in the interim; hence the name claim now, claim more later.
It works like this:
- The lower earning spouse claims his or her retirement benefit
- The higher earning spouse (at full retirement age) restricts his or her own larger retirement benefit and takes the lesser spousal benefit in the interim
- The higher earning spouse claims his or her own retirement benefit once it has maximized at age 70; the amount is unaffected by any spousal benefits already received
- The lower earning spouse may then access spousal benefits based on the higher earning partner’s work history if it is greater than his or her own retirement benefit
Basic examples of claim now, claim more later
Below are five examples of how this strategy can be used to maximize benefits. The sixth example represents the possible result if a husband and wife simply take their full benefit at age 66.
|Example One — Jane Applies at Full Retirement Age|
|At the couple’s full retirement age of 66, Jane applies for her Social Security benefits. By applying, she allows Jack to begin an $800 spousal benefit (which is half of Jane’s full retirement age benefit) in addition to collecting her own $1,600 deposit. Jack’s own retirement benefit continues to grow until it is $3,487 at age 70. To access the $800 spousal benefit, Jack must restrict his larger retirement benefit ($2,642 at age 66) now and for four years. The total claimed by Jack over four years is $38,400, yet he is able to claim more later — his own $3,487 retirement benefit at age 70.|
|Example Two — Jane Applies Early|
|Jane begins receiving a retirement benefit of $1,200 at age 62. Her $1,600 retirement benefit will be penalized by 25 percent ($400) due to her early application. Jack is still able to claim the full $800 spousal benefit at age 66 and restrict his larger benefit until age 70.|
Claim now, claim more later versus file and suspend
Claim now, claim more later would typically be a better choice because when Jack files and suspends, only $1,321 in spousal benefits is available to Jane — much less than the $2,400 that would be available when the couple combines Jane’s $1,600 retirement payment with Jack’s spousal benefit of $800 (half of his wife’s amount).
Combining two Social Security strategies
File and suspend can be combined with claim now, claim more later in a third scenario:
- The higher earning spouse files for, and suspends, his or her retirement benefit
- The lower earning spouse, at full retirement age, restricts his or her own larger retirement benefit and takes the lesser spousal benefit in the interim
- Both the higher earning and lower earning spouse claim their own retirement benefit once it has maximized at age 70, unaffected by the previous benefits received
|Example Three — File and Suspend with Claim Now, Claim More Later|
|At the couple’s full retirement age of 66, Jack applies for Social Security but then suspends payments. By applying, Jack allows Jane to begin receiving a $1,321 spousal payment (equal to half of Jack’s $2,642 benefit) while Jack and Jane’s own benefits continue to maximize until they are $3,487 and $2,112, respectively, at age 70.
Jane is restricting her larger amount ($1,600 at age 66) to claim the smaller $1,321 spousal deposits for four years (totaling $63,408) that are made available when Jack files and suspends. She is still able to claim $2,112 per month at age 70; an effective blending of the two strategies.
The suspension of payments to Jack allows him to change his mind and receive a lump sum for all of the benefits he has delayed. He can do this at any time between his full retirement age of 66 and age 70. The full 48 months of $2,642 deposits would equal $126,816 if he chooses to receive them as a lump sum at age 70 and forego the $3,487 benefit.
|Example Four — Jack Applies Early|
|Jack doesn’t want to wait for payments to start at age 66 and he instead receives his first Social Security deposit at 62. Because he chose the early date, his $2,642 benefit is reduced 25 percent ($655) to $1,987. Jane is still able to claim the full $1,321 spousal benefit when she turns 66, and her maximized $2,112 retirement benefit at age 70.|
|Example Five — Jack Applies Early, Changes His Mind|
|At full retirement age Jack still retains the ability to change his mind and suspend benefits until as late as age 70, but because he already took four years of benefits he'd only receive an amount approximately equal to what would be his age 66 amount of $2,642.|
|Example Six — Jack and Jane Apply for Benefits at Full Retirement Age|
|Jack’s full retirement age benefit is $2,642. Jane’s is $1,600. They are the same age. Both apply for and accept retirement benefits at age 66.|
How we can help
There are a number of ways a married couple can go about collecting Social Security benefits; depending on the projected longevity of the husband and wife, income tax, other income and investments, and other factors, the traditional claiming of benefits at the full retirement age of 66 may not always be the best choice. Even if a marriage ends, divorced-spouse benefits may be available to one or both spouses. Always consider these issues with your wealth advisor before making important decisions.
Having a plan that specifies when to start benefits, clearly communicated goals, and cooperation between the two parties is a great place to start. We can help you begin with a vision and goals for your post-work years, and then design a strategy to help make them a reality.