Once the April 29 deadline has passed for implementing the "file and suspend" option for boosting married couples' Social Security benefits, what can couples do to enhance their retirement income? Is it still worth spending time to figure an optimal claiming strategy?
The answer is a resounding yes!
"It's possible for a married couple to add $200,000 of income over their lifetime with an optimal strategy for claiming their Social Security benefits, compared to starting benefits at age 62 as many people commonly do," said Wei-Yin Hu, vice president of financial research at Financial Engines.
Let's look at two common scenarios where an optimal claiming strategy can significantly boost lifetime income.
Both spouses have significant career earnings
In this case, both spouses will get a Social Security benefit based on their own earnings record. If the husband had higher career earnings, it's usually best for him to delay starting his Social Security income until age 70 or as long as possible. This increases his expected lifetime payout from Social Security and maximizes the survivor's benefit to his wife if she survives him. It may pay for her to start her benefit earlier, at her full retirement age (currently age 66). This way, they're both receiving some income while he delays his benefit.
In this situation, one more tactic is possible if the husband had attained age 62 by the end of 2015. If he has reached age 66 when his wife starts her earned benefit, he can file a "restricted application" to start only his spousal benefit based on his wife's earned benefit. This benefit will be paid until he attains age 70, when he can start his own earned benefit. In this case, he'll still receive delayed retirement credits until age 70 on his earned benefit.
If you attained age 62 in 2016 or later, this tactic is no longer allowed.
Note that this strategy can also work if the wife has been the primary wage earner. In this case, the husband starts his earned benefit at age 66 and the wife files a restricted application while delaying her earned benefit. The same deadlines mentioned above will apply.
Only one spouse has worked for a full career
In this case, the nonworking spouse will receive a benefit that's based on 50 percent of the primary wage-earner's benefit. This spousal benefit is paid in addition to the wage-earner's benefit.
Under Social Security's new rules, the wage-earner must start taking the earned benefit in order for a spouse to start the spousal benefit. In this case, it might not be optimal to delay both the wage-earner benefits and the spousal benefits until age 70, particularly if one or both of the spouses are in average or poor health. In addition, they may not be able delay their Social Security benefits that long if they retire before age 70 and don't have substantial savings to live on.
Such a couple might be better off starting both the wage-earner's benefit and the spousal benefit at their full retirement age or a year or two later.
Married couples face thousands of possible strategies for optimizing their Social Security benefits. The best way to sort through all the options is to let a computer do the number-crunching for you with an online Social Security calculator, such as the free online planner Financial Engines offers.
You can input the expected Social Security benefit for each spouse, based on each one's earnings record. If you don't know your expected Social Security benefit, you can estimate it on the Social Security website. With the Financial Engines' calculator, you can also input each spouse's health status to take into consideration how long the Social Security income might be paid. The Financial Engines' calculator also takes into consideration the surviving spouse's benefit paid after one spouse passes away.
For many Americans, Social Security provides the largest portion of their retirement income. With so much money potentially at stake, it's well worth several hours of your time learning about an optimal claiming strategy. In turn, this can help you make important life decisions, such as how long you might need to work and how much income you can expect to help pay for your living expenses.
When you reach your 70s and 80s, your future self will be grateful you spent this time now to get the most from Social Security then.