Filing for Social Security and Spousal BenefitsBy Joseph N. Filosa, CFP® | March 5, 2020
For many retirees, Social Security benefits represent a sizable chunk of guaranteed monthly income. Think of it as a nice supplement to the nest egg you’ve worked so hard to build over the years. Taking advantage of spousal benefits is another smart strategy that could potentially boost your income in retirement.
The details can be a little tricky. Let’s first review how Social Security works in general, then unpack how using spousal benefits can maximize your strategy.
A Quick Social Security Benefits Primer
During your working years, if you’re a W-2 employee, Social Security tax is taken directly out of your paychecks. Self-employed folks, freelancers and independent contractors cover this obligation when they file their annual income tax return.
Either way, you’re funneling money into this program, which is then used to pay out benefits to qualifying recipients. The idea is that when it’s your turn to retire, your benefits will be funded by those who are still in the workforce. How much you’ll be eligible for depends on the year you were born, your income, and when you actually start claiming these benefits. To get an estimate of how much can expect to receive, create a Social Security account here.
Timing Is Everything
The longer you delay taking Social Security benefits, the more you’ll receive. While you can technically begin at age 62, doing so will result in reduced benefits. Waiting until you reach full retirement age—which is 67 if you were born in 1960 or later—will get you 100 percent of your benefits. (Your full retirement age is determined by the year you were born. Here’s how the Social Security Administration breaks it down.)
Let’s say, for example, your full retirement age is 67. If you begin taking benefits at 62, you can expect a reduction of about 30 percent. That amount gets smaller and smaller every year you get closer to your full retirement age. However, if you can wait until 70, you’ll get 8 percent more per year, thanks to delayed retirement credits.
How Spousal Benefits Work
You’re able to collect up to half of your spouse’s benefits if that amount is greater than your own benefit. This is ideal for folks whose work history isn’t as robust as their spouse’s. You have to be 62 or older, married for at least one year, or divorced for a minimum of two years.
That’s right; you might be able to collect on your ex’s earnings. Some stipulations apply—you must have been married for at least 10 years; you cannot be currently remarried; and your ex must already be collecting their benefits.
If you’ve been married and divorced more than once, and meet all the other requirements, you can take whichever spousal benefit is highest.
Widows are also eligible for certain Social Security benefits. Following the death of a spouse, the survivor will continue to receive whichever check is larger—theirs or their spouse’s.
This is precisely why careful planning is so important. Smart strategizing now could fortify your spouse’s financial security later down the road.
When to File for Spousal Benefits
Just like collecting your own Social Security benefit, holding off on spousal benefits translates to more money. Let’s again pretend your full retirement age is 67. If you opt for spousal benefits at age 62, your monthly benefit will be decreased by roughly 32.5 percent. However, waiting until 67 means getting the full 50 percent benefit.
Taking advantage of spousal benefits can be a smart financial move, especially if one spouse’s work history results in a lower monthly Social Security payout. Married people can also begin claiming their benefits at different times, which could help unlock more money come retirement. (Remember: the longer you both put off collecting benefits, the higher your monthly amount will be.)
Shoring up your income in retirement is directly linked to how you maximize your Social Security benefits, including spousal benefits. Get clear on how much you’ll likely be eligible for, then make a plan for timing your claim in a way that makes the most sense for your overall financial picture.
Again, having a strong retirement plan—which includes saving in tax-advantaged accounts like 401(k)s, IRAs and Health Savings Accounts—will help put you in a position where you can comfortably defer Social Security. At Opal Wealth Advisors, we specialize in creating customized financial plans that are designed to do just that. From there, you can focus on enjoying your retirement.
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