Secret weapon for maxing out Social Security benefits? Your spouse

Hardly a day goes by that I don't receive an e-mail from InvestmentNews readers about strategies on how to claim Social Security. I usually respond to them privately, but a question from a financial adviser in Los Angeles was so good that I wanted to share it with a wider audience. He wanted to know if a husband and wife can claim spousal benefits for each, based on the other's earnings record. The short answer is no, but there are still ways for married couples to coordinate and maximize their Social Security benefits. There have been several press reports recently that have muddied the waters on this issue. As usual, I went straight to the source — the Social Security Administration — to set the record straight. If both spouses wait until their normal retirement age — currently 66 — one can file and suspend, and then delay collecting his or her benefits until 70, when they will be worth the maximum amount. Social Security benefits increase by 8% a year for every year that an individual delays collecting between 66 and 70. So if someone waits until 70 to claim, the retirement benefits will be worth 132% of what they would have been at the normal retirement age of 66. By filing and suspending, a person is telling the Social Security Administration that he or she wants to file for the purpose of triggering benefits for a spouse but delay collecting his or her own benefits until a time when they will be worth more. Let's say that the husband is entitled to $2,000 a month at 66. His wife's spousal benefit is worth half his full retirement benefit — $1,000 a month in this case — if she collects at 66, less if she collects earlier. The earliest that one can collect a spousal benefit is 62. In that case, her spousal benefit is worth 35% of the worker's full amount — $700 a month — rather than $1,000 because she is collecting it four years early.

RESTRICTED CLAIM

But if the wife also waits until her normal retirement age, she can file a restricted claim for spousal benefits only. That means that she collects $1,000 a month, which is half the full retirement benefit that her husband has delayed collecting. And because she has restricted her claim to spousal benefits only, her own retirement benefit accrues delayed retirement credits of 8% a year until she claims the maximum amount at 70. Let's review. The husband's full retirement benefit at 66 is $2,000 a month, but he files and suspends, so he delays collecting until 70 when it will be worth $2,640 a month. The wife files a restricted claim at 66, for spousal benefits only, and receives a spousal benefit of $1,000 a month. Let's say her own benefit, which she defers, is worth $1,800 a month. At 70, it will be worth $2,376. Assuming that they are the same age, their combined Social Security benefit at 70 will be $5,016 a month, compared with $3,800 if they each collect benefits at their normal retirement age. In addition, the larger benefit will serve as a bigger base for future cost-of-living adjustments and lock in the largest survivor benefit for the wife if the husband dies first. Bottom line: Husbands and wives can't each claim a spousal benefit, but both can maximize their benefits by waiting until 66 — what I like to call the “magic age” — to elect a claiming strategy. One can file and suspend. The other can restrict the claim to spousal benefits only. And both can earn delayed retirement credits to maximize their benefits. mbfranklin@investmentnews.com Twitter: @mbfretirepro