How to maximize Social Security benefits


Q. I am 60 years old. At age 62, my Social Security benefit would be $1,400 per month. My full retirement age (FRA) is 66 years 8 months, at which time my Social Security benefit would be about $1,900 per month. My husband is 66 years old, and he doesn’t plan to file for Social Security until age 70, when his benefit will be about $3,100 per month. We are both in good health and are trying to determine the best strategy to maximize our Social Security benefits. We’re thinking this: I file at age 62 and receive $1,400 a month and my husband files a spousal benefit and receives $950 a month. When he turns 70, he switches to his own benefit of $3,100 a month, and if I outlive him, I would switch to his benefit of $3,100 a month. Is this the best strategy?
— Thinking it over

A. You sure have done your homework.

We’re going to summarize strategies anyone case use before deciding how to take Social Security benefits.

Spousal benefits are one of the most confusing provisions of the Social Security system however, it is essential for married spouses to coordinate spousal benefits and to determine the best age for each spouse to file and receive Social Security benefits, said Gerard Papetti, a certified financial planner and certified public accountant with U.S. Financial Services in Fairfield.

“The objective in coordinating benefits for married spouses is to maximize income while both are alive while also providing the highest possible benefits for the survivor, who may live another 25 to 35 years after the death of the spouse,” he said.

At one time or another, a married spouse might be receiving a spousal benefit, a worker benefit, or a survivor benefit, Papetti said. Whether both spouses worked and earned benefits or whether only one spouse did, there are ways to optimize benefits by developing a claiming strategy.

Papetti said the Bipartisan Budget Act of 2015, signed into law on Nov. 2, 2015, eliminated several “switching” strategies.

For one, “file and suspend” is no longer available.

“Under the new law, if you were age 66 or older within the 180 days following the date the bill was enacted – up until April 29, 2016 – then you could still `file and suspend’ your primary benefit and earned Delayed Retirement Credits (DRCs),” Papetti said. “But, after April 29, 2016 the `file and suspend’ strategy ceased to exist and is no longer available to a spouse or dependent to collect a benefit as those individuals must collect their own benefit and forego DRCs.”

Papetti said if an individual suspends benefits, all spousal and dependent benefits will be suspended.

The tax law also eliminated the so-called restricted application.

“Section 831(a) of the BBA of 2015, Section 202 (r)(1) of the Social Security Act is altered to expand the “deemed application” rules from applying only to early benefits (prior to FRA) to instead applying to all benefits regardless of age,” Papetti said.

You should also know about the “deemed filing” rule according to SSA Handbook Section 1510:

“If you are eligible for both reduced retirement insurance benefits and reduced spouse’s insurance benefits beginning with the same month, you cannot restrict an application to just one of these types of benefits. By filing for either benefit, you are deemed by law to have filed for both types of benefits.”

The new rules regarding “restricted application” applies only to individuals who were born after 1953, Papetti said. Anyone born in 1953 or earlier is grandfathered and will still be able to engage in filing a restricted application in the future because they remain eligible based on birth year, even if they don’t turn age 66 until 2019, Papetti said.

Individuals who were born in 1953 or earlier can still use a restricted application and file for spousal benefits only at full retirement age (FRA), Papetti said.

“For example, if the claimant waited until FRA to claim a benefit, he/she could choose which benefit to receive – and be allowed to `switch’ later,” he said. “If the choice was made to receive a spousal benefit, his or her own retirement benefit would continue to accrue Delayed Retirement Credits (DRCs).”

Anyone born in 1954 or later is not able to file a “restricted application” and is subject to the new “deemed filing” rule that if a claimant files for any benefit, as he or she is “deemed to be filing” for all benefits, Papetti said. This means that if a claimant was eligible for his or her own benefit and a spousal benefit, he or she would only be paid a single benefit — the equivalent of the higher of the two, he said.

“The new rule extends the `deemed filing’ provision to age 70, meaning that the payable benefit will always be the higher benefit if eligible for more than one,” he said. “And no longer will an individual be able to switch to the other higher benefit – claim now and claim more later or use the combination strategy: file and suspend with a restricted application.”

Earnings limits are also important to consider.

If you are younger than full retirement age and make more than the yearly earnings limit, your earnings may reduce your Social Security benefit amount, Papetti said, noting that full retirement age is 66 for people born between 1943 and 1954. Beginning with 1955, two months are added for every birth year until the full retirement age reaches 67 for people born in 1960 or later.

If you are under full retirement age for the entire year, the Social Security Administration will deduct $1 from your benefit payments for every $2 you earn above the annual limit. For 2018, that limit is $17,040, Papetti said.

“In the year you reach full retirement age, they deduct $1 in benefits for every $3 you earn above a different limit,” he said. “In 2018, the limit on your earnings is $45,360 but they only count earnings before the month you reach your full retirement age.”

So to your particular strategy: Papetti said it’s is valid, but it may not produce the best results.

Based on a life expectancy of age 90, a cost of living adjustment of 1.5 percent compounded at the beginning of each year, and Social Security benefits provided in your question, Papetti offered the following observations, with some math to go along:

Wife filing at age 62 and husband age 66 filing a restricted application to receive spousal benefits for two years until he attains age 70 and files for his benefit:
a. Wife’s $1,400 benefit until husband dies (age 62-86)     $512,635
b. Husband’s $950 spousal benefit for two years (68-70)   $23,316
c. Husband’s $3,100 primary benefit (age 70-90)                 $923,958
d. Wife’s $4,238 benefit upon husband’s death (87-90)      $211,168
Cumulative Potential Benefits                                                   $1,671,077

2. Wife filing at FRA age 66 and 8 months and husband filing at FRA age 66:
a. Wife’s $1,900 benefit until husband dies (age 66-86)  $566,29
b. Husband’s $2,300 primary benefit (age 66-90)             $842,186
c. Wife’s $3,337 benefit upon husband’s death (87-90)    $166,273
Cumulative Potential Benefits                                                $1,574,756

3. Wife filing at FRA age 66 and 8 months and husband filing at age 70:
a. Wife’s $1,900 benefit until husband dies (age 66-86)   $566,297
b. Husband’s $3,100 primary benefit (age 70-90)              $923,958
c. Wife’s $4,238 benefit upon husband’s death (87-90)    $211,168
Cumulative Potential Benefits                                                $1,701,423

4. Wife filing at age 70 and husband filing age 70:
a. Wife’s $2,508 benefit until husband dies (age 70-86) $747,512
b. Husband’s $3,100 primary benefit (age 70-90)            $923,958
c. Wife’s $4,238 benefit upon husband’s death (87-90)  $211,168
Cumulative Potential Benefits                                              $1,882,638

Papetti said the fourth scenario provides the greatest benefits, but all of the amounts here are cumulative totals and do not consider the time value of money.

“Wife delaying until FRA yields $30,346 more in benefits,” Papetti said. “If there is no need for income, delaying husband’s filing to age 70 is recommended.”

If the wife files at age 62, the benefits she receives will be subject to the earnings limitation test, and that may cause some benefits to be reduced, he said.

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