This is the second in a two-part series addressing Social Security benefits.
In last month’s column, I explained how you could maximize Social Security income by analyzing when to begin collecting benefits, particularly if you are married, divorced or widowed.
Suppose Jack and Jill are married, are the same age and have both reached their full retirement age (FRA), 66. That’s the age at which your monthly benefit is the same as your primary insurance amount (PIA). The monthly benefit, to which you are normally entitled, is based on the highest 35 years of your earnings.
If you file for benefits before full retirement age, you’ll receive less than your primary insurance amount; if you file later, you’ll receive more.
The FRA used to be age 65 for everyone, but to keep Social Security solvent, the federal government has been raising the retirement age, and it is now birthdate dependent.
Jack’s primary amount is $2,200 and Jill’s is $800. Because they don’t need the money right away, they decide to delay collecting benefits for another four years. And because Jill’s PIA is less than half of Jack’s, she plans to take her spousal benefit – worth $1,100 monthly, adjusted for inflation – rather than her own benefit when she signs up at age 70. They are comfortable with their decision, knowing that they will be maximizing their benefits for the rest of their lives.
But will they? Suppose instead that Jill filed for her benefits at age 66, and Jack filed for spousal benefits at the same age, which the Social Security Administration allows if he’s reached full retirement age and his spouse has filed. That’s $800 for Jill and $400 for Jack each month, adjusted for inflation, until they reach 70.
When he reaches 70, Jack converts to his own benefits and Jill switches to her spousal benefits. The result? The same Social Security income as in the first example for the remainder of their lives, but with the additional $1,200 per month from age 66 until age 70. Without the inflation adjustment, that amounts to $57,600.
By knowing the rules and applying a little creative planning, Jack and Jill could have received the equivalent of a Tesla sedan in the four years before their final filing with the Social Security Administration.
The rules for collecting benefits are straightforward, and a married couple’s ability to maximize their Social Security payments depends on the differences in their ages and in their PIAs. Divorced spouses and widows/widowers also have opportunities to maximize their benefits through creative planning.
The Social Security website contains a wealth of information on retirement benefits, including several calculators to help compute FRA and PIA. Unfortunately, it does not provide the level of guidance needed to maximize your benefits as explained in the above example. If you’d like assistance in strategizing to maximize your Social Security benefits, contact a financial planner or the Social Security Administration.
For more information, visit www.ssa.gov.