Statistically, baby boomer women will outlive their husbands, and yet boomer men generally have higher Social Security benefits. A strategy that considers both spouses can maximize a couple’s benefits and set them up for the future.
Social Security filing options for boomer couples were reduced in 2016 when a planning strategy referred to as “file and suspend” was eliminated. The strategy involved one spouse filing for Social Security benefits to make them accessible to the other spouse, but then suspending the actual payment of those benefits so they could continue to grow until the filing spouse reached age 70.
This strategy was somewhat comforting to baby boomer couples in cases where the statistics proved to be true: the husband had a greater earning’s record and hence a higher Social Security benefit amount, and the wife did, in fact, outlive her husband. But even without the file and suspend strategy in place, there are other ways to maximize a couple’s benefits with some advance planning.
1. The restricted application strategy: Eligible to people born before January 1, 1954
If either spouse was at least 66 years of age and executed the file and suspend strategy before the deadline of April 29, 2016, he or she is earning a delayed retirement credit (DRC) of 8% for each full year of the suspension.
If the other spouse was born on or before January 1, 1954, he or she can elect to file for the spousal benefit only, rather than begin to collect their own. This allows both spouses to earn delayed retirement credits on their individual primary insurance amounts. This strategy is executed by filing what is called a restricted application.
2. The deemed filing strategy: An option for people born after January 1, 1954
Defining this as a strategy may seem to be a contradiction since a deemed filing refers to the Social Security Administration “deeming” the amount of benefits an individual will receive rather than allowing an individual to make their benefits election. In this case, the Social Security Administration looks at what an individual is eligible for (their own primary insurance amount and their spousal benefit amount) and awards the highest eligible amount. This means the strategy involves careful consideration of the order and timing of when each spouse begins to accept Social Security.
3. The wait it out strategy: Wait until full retirement age to collect Social Security
70% of non-disabled men and 76% of non-disabled women file for reduced Social Security benefits prior to their full retirement age, but that could mean a reduction in their PIA and spousal benefit.1,2 If they wait until their full retirement age, they can receive a higher benefit (100% of their PIA and 50% of the spousal benefit).
What’s more, waiting until age 70 provides an even higher benefit, increasing the amount by 8% for each year delayed. Retirees whose full retirement age is 66 can increase their benefit amount as much as 132% by waiting until age 70 to collect Social Security. But after that age, no further increases can be earned.
4. The widow strategy: The benefits of waiting until retirement age for surviving spouses
A surviving spouse is entitled to claim his or her benefit first and is still eligible to claim their deceased spouse’s benefit later if it’s a higher amount (or vice-a-versa).3 If he or she waits until full retirement age to file, a widow or widower is eligible to claim 100% of their deceased spouse’s Social Security benefit. In other words, the surviving widow’s or widower’s benefit is double the 50% spousal benefit they would receive if the spouse was still alive.
There’s another factor that further demonstrates the value of this strategy: the surviving widow or widower benefit is not only 100%, but it also includes any delayed retirement credits earned by the deceased spouse.4 The 50% spousal benefit excludes any DRCs earned by one’s spouse.
When couples change their minds
There are two ways to change a Social Security filing after it has been made:
- Withdrawal of application. This can only be done once and must be done within 12 months after the Social Security payment was initially received. Also, the benefit amount must be fully repaid.
- Suspend benefits. This will suspend an individual’s Social Security payments, allowing them to earn delayed retirement credits during the suspension. However, it will also suspend spousal benefit payments (this does not affect a divorced spouse).
Even though the popular file and suspend strategy has been discontinued, couples can still maximize their Social Security benefits with some advance planning.
- For those born in 1943 to 1954, full retirement age is 66. For those born 1955 to 1959, full retirement age is 66+ 2 months for every year after 1954 until 1960. If you are born in 1960 or later, full retirement age is 67.
- SSA, 2016 Annual Statistical Supplement, Master Beneficiary Record
- So long as the survivor benefit amount exceeds 82.5% of one’s personal benefit, the widow(er) can file a claim.
- Social Security Bulletin, Vol. 70, No. 3, 2010
Columbia Threadneedle Investments does not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.
Article by Abram Claude, Columbia Threadneedle Investments