When David Beermann retired earlier this year from a career as a nurse at age 66, he expected to receive his full Social Security benefits. His wife Sandra, a retired teacher, also planned to file for full benefits when she turned 66 in September.
But after a chance encounter with a local financial planner, the Beermanns have adopted a new Social Security strategy that will result in potentially $70,000 of additional income over the course of their expected lifetimes. Tony Drake, a certified financial planner in Waukesha, Wisc., said people like the Beermanns, who are or have been married, stand to gain thousands of dollars by utilizing their spousal benefits.
Often retirees are unaware of all their Social Security benefits and how to best maximize their income. They assume there’s only one way to receive benefits, and Social Security Administration employees themselves aren’t all trained to dispense financial advice on the often-complex rules. But a little planning can provide a significant boost in retirement income for benefit recipients, says Drake.
Below is a breakdown of the spousal strategies that Drake says could work for you:
#1 File and suspend: Half from your better half
This particular strategy works well if you have one spouse who’s the primary breadwinner and wants to work a bit longer, and the other lower-earning spouse is ready to retire. The higher-earning spouse would apply for benefits, but then suspend collecting them. This allows the other spouse to begin collecting one-half of the filer’s benefit immediately. The spouse who is still working won’t receive any Social Security checks at that time, but would continue to accrue delayed retirement credits – about an 8% increase a year until age 70 – the age when they would start collecting. The great thing about this strategy is that the primary earner collects a full benefit while the spouse collects half of his/her benefit.
For example, with the Beermanns, rather than collecting on her own earning record of $1,299 a month – at age 66 – she would file and suspend and utilize the spousal benefit, which would be $1,150 per month, or half of David’s benefit. This gives her a little bit of a hit in the short term because her Social Security benefits would have been $149 more per month had she started collecting benefits based on her own record instead of her husbands. But it allows her to get a substantial raise in the future by growing her benefit to $1,700 a month by age 70.
David’s benefit doesn’t change at all because he still collects his full retirement benefit. Over the course of her expected lifetime, she’ll collect $69,840 more than she would have if she simply collected her own. (Life expectancy was calculated using tables from the Social Security Administration.)
Here’s a breakdown of how the two different scenarios work:
Scenario #1: She takes her own benefit now, at age 66, at $1,299 per month
$1,299 x 12 months x 20 years =$311,760 collected over 20 years
Scenario #2 with file and suspend spousal benefit strategy:
Collects spousal benefit (half of David's benefit) for 4 years at $1,150 per month
$1,150 x 12 months x 4 years = $55,200
Then at age 70, she collects her own increased benefit at $1,700 for the next 16 years.
$1,700 x 12 months x 16 years = $326,400
$55,200 + $326,400 = $381,600 collected over 20 years
The difference between the two scenarios: $381,600 - $311,760 = $69,840
#2 Restricted application: Taking turns to retirement
The Restricted Application strategy is similar to file and suspend and lets a person apply for benefits based on his or her spouse’s record while delaying benefits based on his or her own record. It is ideal for couples that have comparable incomes, but one spouse wants to retire and the other wants to continue working.
The retiring spouse claims his/her Social Security benefit, and by doing so allows the working spouse to file a restricted application and collect only the spousal benefit. This allows the working spouse to continue to earn delayed retirement credits and watch his/her benefits grow by about 8% until age 70.
#3 Widower benefit: Claim the hidden legacy
If your husband or wife passed away, the surviving spouse can start to receive benefits at age 60. This can be helpful, especially if the surviving spouse didn’t work. A lot of people don’t realize that if you become widowed, and your spouse had a higher benefit, you’re going to be entitled to that higher benefit. You’ll always get the higher of the two benefits: yours or your deceased spouse’s.
#4 Divorcee benefit: Uncle Sam pays alimony
Many retirees are unaware that if you’re divorced, you can collect benefits on your ex-spouse’s record. If you were married for 10 years, your ex is at least 62, and you haven’t remarried, you can start collecting Social Security benefits as an ex-spouse at full retirement age (66 for those born between 1943 and 1954) – even if your ex-spouse has remarried. Obviously, this can be a boon if your ex-wife or husband was the higher earner. Note that getting remarried after a divorce generally means that you lose whatever benefit you may have been eligible for from your former spouse.
Want to learn more? Join us for a LIVE CHAT on Yahoo Finance’s Facebook page and ask our experts your Social Security questions.
When: Wednesday, Aug. 20 at 2PM Eastern
Who: Panel experts will include Tony Drake, CFP, of Drake & Associates, Jean Setzfand of AARP, and Jim Blankenship, CFP, of Blankenship Financial Planning.
Where: Yahoo Finance’s Facebook page
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