If you’ve been reading the Social Security retirement income strategy series that began on September 27th, you know that there are several options regarding commencement of receipt of Social Security benefits. You can begin receiving a reduced benefit as early as age 62, a standard benefit at full retirement age (“FRA”) which can vary from 65 to 67 depending upon your year of birth, or wait until 70 at which time your benefit will be 32% greater than the amount you would receive at FRA.
As a spouse, you can either claim a benefit based on your earnings record, or, alternatively, you can collect a spousal benefit equal to 50% of your spouse’s Social Security benefit. Although you can start receiving Social Security survivors benefits at age 60, you must be age 62 to qualify to receive a spousal benefit.
There’s another unpublicized Social Security strategy for potential maximization of Social Security Benefits called “file and suspend.” Candidates for implementing this strategy are typically in the following situation:
- Older spouse is the breadwinner.
- Spousal benefit will be greater than what would be received under the spouse’s work record.
- Older spouse is in good health.
- Couple has other sources of income, e.g., older spouse is still working, IRA account(s) is (are) available, etc.
- There is no immediate need for additional income.
- Older spouse is at least 62, preferably FRA.
- Younger spouse is at least 62.
By employing this strategy, a couple can start the spousal benefit while enabling the breadwinner to increase his/her FRA benefit by 32%. Here’s how it works. Beginning as early as age 62, and preferably at FRA, i.e., age 65 to 67 depending upon year of birth, the breadwinner files for his/her benefits and his/her spouse files for spousal benefits. The breadwinner immediately requests a suspension of his/her benefits and his/her spouse continues collecting a spousal benefit.
Assuming that the breadwinner is at FRA, his/her benefit will increase 5.5% – 8% each year, depending upon year of birth, until age 70. If the breadwinner dies, his/her spouse will collect a larger benefit equal to what the breadwinner would have collected based on his/her age at his/her time of death.
To the extent that a couple is employing the “file and suspend” strategy and is also taking distributions from an IRA account that wouldn’t otherwise be taken until age 70-1/2, the distributions will reduce the required minimum distributions (“RMD’s”) that would otherwise need to be taken beginning at age 70-1/2. Even though his/her Social Security benefits will be greater when he/she finally begins receiving them at age 70, this strategy can potentially reduce the amount of the breadwinner’s taxable Social Security benefits.
The “file and suspend” strategy is a viable solution for maximizing a married couple’s Social Security benefits, however, it’s not without risk. Stay tuned for Part 2 next week to learn about why this strategy may fall short of accomplishing its goal of maximizing a married couple’s Social Security benefits.
Robert Klein, CPA, PFS, CFP®, RICP®, CLTC® is the founder and president of Retirement Income Center in Newport Beach, California. Bob is also the sole proprietor of Robert Klein, CPA. Bob applies his unique background, experience, expertise, and specialization in tax-sensitive retirement income planning strategies to optimize the longevity of his clients’ after-tax retirement income and assets. He does this as an independent financial advisor using customized holistic planning solutions based on each client’s needs and personality.