05 Aug How can this married couple get the most from Social Security?

Q. My husband applied for Social Security in August 2019 when he turns 66. He was born in 1953. I will be 65 next January (born February 1955). We thought I could receive half of my husband’s benefits then and defer my own until I turned 66 and 2 months (in April 2021) to receive the max. Social Security said no. Can you explain?
— Confused

A. Your question illustrates just how complex the Social Security rules can be. It also shows how the facts of any one case will determine the outcome.

It also highlights a change in the law.

Judging from your summary of the conversation, the Social Security representative is correct but may not have fully explained the situation, said Gene McGovern, a certified financial planner with McGovern Financial Advisors in Westfield..

The filing strategy that you’re referring to has largely been eliminated by changes to the so-called deemed filing rules that were enacted under the Bipartisan Budget Act of 2015.

“Under those rules, if you’re eligible for both a spousal and a retirement benefit, and you file for either one at any age, you’re deemed to have filed for both benefits and automatically receive the higher of the two,” McGovern said. “You can’t file for only one of the two benefits.”

Under the old rules—provided that you waited until your Social Security full retirement age—you could file for spousal benefits only while allowing your retirement benefits to increase up to age 70. Then you could switch to the higher benefit, he said.

That strategy was called a restricted application.

The old rules still apply only if you were born in 1953 or earlier, but because you were born in 1955, the new rules apply to you, he said.

The old rules do apply, though, to your husband, because he was born in 1953. That suggests that you may be able to reverse the strategy you’re thinking of, but whether this is beneficial will depend on the numbers.

“Because he will reach his full retirement age of 66 this month, your husband could file a restricted application for spousal benefits only on your earnings record now, instead of his retirement benefits,” McGovern said. “His spousal benefit would be 50 percent of your full retirement age benefit.”

For him to do that, though, you would first have to file for your own retirement benefits.

While he’s collecting spousal benefits on your record, your husband’s retirement benefit would increase for every month he waits beyond age 66 until age 70, he said.

Note that if you file now for your own retirement benefits, they’ll be permanently reduced because you haven’t yet reached your full retirement age, McGovern said. However, your husband’s ability to collect spousal benefits now while allowing his retirement benefits to increase could potentially maximize your joint lifetime benefits, assuming that your husband’s retirement benefit is greater than yours.

“Again assuming that your husband’s retirement benefit is higher than yours, delaying his retirement benefits to age 70 would also ensure that, when either of you dies, the survivor would receive the maximum possible benefit,” he said.

Let’s review the overall rules regarding Social Security spousal benefits.

If you’ve been married to your spouse for at least one year, or for at least 10 years in the case of divorced spouses, you can collect benefits on the earnings record of your spouse, whether or not you have a work history of your own, McGovern said. These spousal benefits are distinct from retirement benefits, which are based on your individual earnings history.

In order for you to claim a spousal benefit, your spouse must have already filed for his or her own retirement benefit.

The spousal benefit is 50 percent of the benefit your spouse would receive at his or her full retirement age. For example, if your husband’s benefit at his full retirement age of 66 would be $2,000, your spousal benefit at your full retirement age of 66 plus 2 months would be $1,000, he said.

The spousal benefit remains $1,000 in this example regardless of whether your husband files earlier or later than his full retirement age, and regardless of the amount he’s actually receiving.

However, if you claim a spousal benefit earlier than your own full retirement age, the benefit is permanently reduced, just as with retirement benefits, although the reduction is somewhat steeper for spousal benefits, he said.

“If you’re eligible to collect retirement benefits on your own work history, as well as spousal benefits, Social Security essentially pays you the higher of the two,” he said. “For example, if your own retirement benefit is $900 per month, but your spousal benefit is $1,000 per month, the higher spousal benefit would be paid.”

Social Security always pays your own retirement benefit first. It then adds to that the excess, if any, of the spousal benefit over the retirement benefit. In this example, you would be paid your own benefit of $900 per month plus the $100 spousal benefit, bringing the total payment to $1,000, he said.

On the other hand, if your retirement benefit is greater than your spousal benefit, no spousal benefits would be paid unless, like your husband, you’re eligible to file a restricted application for spousal benefits only, he said.

Let’s get back now to your question: If you file for spousal benefits, whether in January 2020 or at any other time, you’ll be deemed to be filing for both your retirement and your spousal benefits, and will receive the higher of the two amounts.

“In January 2020, you’d be filing more than a year earlier than your full retirement age,” McGovern said. “Because of the early filing, your retirement benefit would be reduced by about 8 to 9 percent from your full retirement age amount. Your spousal benefit, by contrast, would be reduced by about 10 to 11 percent. You’d receive the higher of the two.”

Despite that reduction, you and your husband may be able to maximize your joint lifetime Social Security benefits by having you start your retirement benefits now, even though reduced, while he files a restricted application for spousal benefits on your record.

Your husband would be able to collect 50 percent of your full retirement age benefit now while allowing his own retirement benefit to increase by up to 32 percent at age 70.

Whether that strategy ultimately works depends on your individual retirement benefit amounts, your health, and your current cash flow.

We recommend you go back to Social Security and run the numbers both ways. Good luck.

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This story was originally published in August 2019.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.