Social Security beneficiaries who celebrated their 70th birthday on Jan. 1 are the last individuals to benefit from a special spousal rule. For everyone else, that rule is officially dead.
Individuals born on or before Jan. 1, 1954, are eligible to use a Social Security strategy that allows someone to switch between their benefits and their spouse’s to receive the maximum amount.
With this rule, the higher-earning spouse would claim spousal benefits at “Full Retirement Age” while the other spouse claims their own benefit. The higher earner would then switch to their benefits at age 70, maximizing their monthly benefit check because of the delayed retirement credits. The lower-earning spouse would have the opportunity to claim spousal benefits, or keep his or her own, depending on which benefit is higher.
The last of the individuals eligible to do this, however, turned 70 last week.
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Still, there are strategies available to married couples looking to maximize their benefits. And it’s crucial they discuss it.
“It is critically important for married couples to do Social Security planning,” said Matthew Allen, co-founder and chief executive officer of Social Security Advisors.
Social Security always pays the higher of the individual’s benefits or spousal benefits to the lower earner. Retirees and near-retirees looking to claim benefits should create an online account with the Social Security Administration, where they can see what their estimated benefits are at claiming ages — such as 62, Full Retirement Age and 70 — as well as verify that all of their information and work records are correct.
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From there, future beneficiaries can decide how to make the most of their own and their spouse’s benefits after taking into consideration other financial needs and resources. For many couples, this becomes a balancing act — trying to make the most of Social Security benefits without withdrawing retirement savings too quickly or coupling those benefits with income sources, such as a pension or annuity. Couples need to consider future income needs, taking caution not to take so much from investments in the present that there might not be enough of a nest egg left if one spouse dies and Social Security income is sharply reduced.
Spousal benefits are only available when one spouse has already began collecting benefits, and equal up to half of the other spouse’s primary insurance amount. The actual percentage depends on a few factors, such as the age in which both people claim. If the individual looking to claim spousal benefits claims before his or her Full Retirement Age, the amount is reduced. The spousal benefit is always based on the other spouse’s primary insurance amount, regardless when the higher-earning spouse claims.
For example, if Spouse A is the higher-earner with a monthly primary insurance amount of $1,000 and a Full Retirement Age of 67, but if she claims at 62 she’d see a 30% reduction in her benefits (or $700 a month). If Spouse B, who is claiming spousal benefits, were to claim at his FRA, the benefit would be half, or $500 a month. But if Spouse B took his spousal benefit at 62 instead, the benefit would be reduced by 35%, or $325 a month, according to the Social Security Administration.
It doesn’t always make sense for the lower earner to wait to claim, Allen said. Filing prior to FRA gives the couple some extra income, and the spousal benefit can always be increased when the higher earner finally claims.
“It gives the lower earner the ability to get some money out of the system in the event an earlier death happens,” he said. The lower earner should rarely delay past FRA, either, since spousal benefits stop growing at that point, Allen added.
Financial planners, and professionals who specialize in Social Security, can help individuals maximize their benefits — and get granular on when exactly to claim, down to the month.
“More people spend time vacation planning,” Allen said. “They have the most options for different permutations, so it is particularly important for married couples.”
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