Wednesday, December 30, 2014 |
Joe Alfonso, GoLocalPDX Contributor

Deciding how spouses should coordinate their Social Security claiming decisions when both are eligible for retirement benefits is a complicated planning challenge. I recently responded to a reader question in this area and tried to highlight the issues and associated pitfalls.

Q: My wife and I are 62. In considering her SS claiming strategy, can she take her own benefit now and then claim 50% of my SS benefit when we have both reached our full retirement age of 66?

A: A simple answer to your question would be misleading given the complexity in this area.

First, remember that once you file for own benefit your wife becomes entitled to a spousal benefit, and vice versa.

If you have already filed for your own retirement benefit, and if your wife files for early benefits, she will not be able to claim a full spousal benefit at her age 66. The SSA will first pay her a reduced retirement benefit @75% of the FRA amount. Then, if her FRA retirement benefit is less than 1/2 of your FRA retirement benefit, the SSA will automatically pay her a reduced spousal benefit (@70% of the FRA amount) on top of her reduced retirement benefit. The combined benefit will be less than the full spousal benefit she would have been entitled to if she had waited until her age 66 to file.

If your wife’s FRA retirement benefit is greater than 1/2 of your own FRA retirement benefit, your wife will only receive a reduced retirement benefit due to filing early. She will never be paid a spousal benefit. And because she filed before her FRA, she forever loses the ability to delay taking her own benefit while receiving a full spousal benefit, a strategy only available after FRA.

If on the other hand you are planning to wait until your age 66 to file for your own retirement benefit, and your wife files for benefits at her age 62, at that time she will only be paid her own reduced retirement benefit. Later, at her age 66, if her own FRA benefit is less than 1/2 of yours, once you file for your own benefit she will then be paid an additional spousal benefit based on the difference between your respective retirement benefits. This “spousal adder” will not be reduced for early claiming but, because it is added on top of her reduced retirement benefit, her combined benefit will still be less than the full spousal benefit she would have received if she had waited to her age 66 to file in the first place.

I am sure you see how complicated things are in this area and how careful you need to be to avoid making a mistake.

In order to decide on a good claiming strategy for you as a couple, it is important to know your respective FRA benefit amounts.

If for example your FRA benefit is higher than your wife’s, you will want to maximize it if at all possible by waiting to claim it until your age 70. You can still qualify your wife for a full spousal benefit at her FRA by using the “file and suspend” strategy that allows you, at your FRA, to file for your own benefit but then immediately suspend it to age 70 to allow it to continue to grow. Your wife would claim a full spousal benefit at her age 66. If your wife’s spousal benefit is higher than her retirement benefit, she will continue to collect the spousal benefit until one of you passes; if her retirement benefit is higher, she will switch to it at her age 70 and enjoy the growth it earned as a result of her waiting. The survivor will take over the higher of your respective benefits at the first passing. This strategy, assuming a normal life expectancy, will maximize your lifetime cumulative income. You must wait until FRA, however, as this and similar strategies are not allowed before then.

Simple answers are rarely correct in this area. I suggest working with an advisor with expertise in Social Security planning to determine the best strategy for you and your wife in light of your specific circumstances.

Good luck.

A version of this article originally appeared in the
Business Section of GoLocalPDX