THINKING RETIREMENT – ANDY LANDIS– A real-life case study illustrates three strategies for maximizing Social Security: delay, file and suspend, and spouse-only payments.
True story, except the names are changed:
I was wrapping up a client education event for a Seattle attorney. Call her Clair. She had collected about 50 clients and colleagues for a two-hour workshop on Social Security and Medicare. We explored the basics and got rave reviews from attendees. Now the room was empty and we were basking in the success of the event, in “pat-on-the-back” mode.
“My husband and I are definitely waiting until age 70 for Social Security,” she shared. “We both turn 66 this year, but we’ll continue our professional jobs. We like the idea of the 132% Social Security.”
Right there Clair was using some Social Security smarts. It’s called the “delay strategy”—if something so simple can be called a strategy. Simply put, for every month you delay starting Social Security, up to age 70, you’ll get more per month—up to 132% of your age-66 payment. With at least average life expectancy, you’ll get higher lifetime payments too.
Once Clair and her husband—call him Cliff—turned 66, they could choose to start their Social Security, with no penalties from current work. Their high lifetime earnings would yield monthly Social Security payments of about $2500 each at 66. Not bad—but instead they preferred to delay Social Security, collecting “Delayed Retirement Credits” (DRCs) along the way. Wait to age 70, and the 4 years of DRCs add up to 132% payments, about $3300 each for Cliff and Clair. All they had to do was survive past 83 to get more lifetime payments—never a sure bet, but a safe one for this healthy, working couple.
“Great idea,” I said. “But did you know you could get Social Security for the next 4 years, and still get 132% payments at 70?”
Clair couldn’t believe such a bizarre idea. And I was too polite to point out that I’d spent the last 36 years learning everything I could about Social Security. So I told her to call SSA and check it out.
“You were right!” she gushed later that week. “We can get about $1250 a month for the next four years, and still get 132% each at 70. That’s an extra $60,000 for retirement!” I love it when that happens. She wins—and (blush) I was right. All in a day’s work, ma’am.
To get that “bonus” $1250 a month, Cliff and Clair will exercise two additional Social Security strategies.
First, one of them, let’s say Cliff, will “file and suspend.” That means he’ll file for Social Security but immediately suspend any payments. By filing, he’s “on the books” at SSA, which opens the door for spousal payments for Clair. And by suspending, his payments continue to garner DRCs “in the background,” up to 132% at age 70.
Next, Clair will file for “spouse-only” payments on Cliff’s now-active Social Security record. She’ll file for Social Security, but “restrict the scope” of the application to spouse-only payments, preventing her own Social Security from starting. As a spouse at 66, she gets 50% of Cliff’s $2500 age-66 payment. That’s $1250 per month. Her own Social Security, like Cliff’s, is garnering DRCs and will grow to 132% at 70.
The bottom line: Cliff and Clair get an unexpected “bonus” of $60,000 in spousal payments over the next 4 years, and they each get $3300 per month at 70. Talk about having your cake and eating it too.
Fine print: (1) Anyone can delay Social Security to age 70 if you can afford to, e.g. by working. (2) However, you can exercise the “file and suspend” and “spouse-only” strategies only if you’re over Full Retirement Age (currently 66). (3) The 132% payment assumes your Full Retirement Age is 66. It’s a different percentage for different FRAs. (4) And only one of you can get spousal payments from 66-70, not both of you. Because of that, you’ll want to maximize the spousal payments by having the higher earner file and suspend, and the lower earner file for spouse-only payments. (5) Maximizing strategies aren’t for everyone.
All these strategies are covered in more detail in my book, Social Security, The Inside Story. [ http://www.amazon.com/Social-Security-Inside-Story-Edition/dp/1467970417/ref=sr_1_2?ie=UTF8&qid=1352918117&sr=8-2&keywords=retire+landis ] They’re sketched on SSA’s website. [ http://www.ssa.gov/retire2/suspend.htm ] There’s also software to help you decide the right strategy.
Learn all you can about Social Security. And as always, keep on planning