Although you can begin receiving Social Security benefits at age 62, the longer you wait, the higher the benefit to which you will be entitled. But what if you need money right away and can’t afford to wait? If you are married, there is a strategy that may allow you to claim some benefits immediately and then claim more benefits later.
Kevin Huck, a principal in the estate planning law firm of Huck & Brisske, LLC, and John Dragstrem, of Wheaton Wealth Partners, conducted a series of workshops recently, at which they outlined this strategy, among others, to maximize Social Security benefits.
Some background will help explain how to take advantage of this strategy. When it comes to taking your Social Security retirement benefits, you have three options: (1) you can begin taking benefits between age 62 and your full retirement age; (2) you can wait until your full retirement age (which varies depending on your age); or (3) you can delay benefits and take them anytime up to age 70. Your benefit will increase by 6 to 8 percent (depending on when you were born) for every year that you delay, in addition to cost of living increases.
The “claim early, claim more later” strategy discussed by Mr. Huck and Mr. Dragstrem in their workshops is based on the fact that married individuals are entitled to claim a Social Security benefit based either on their own earnings or to a spousal benefit equal to one-half of their spouse’s full retirement benefit. When you reach full retirement age, the Social Security rules allow you to choose which benefit you want to take. If you choose your spousal benefit, your own benefit will continue to increase. Then at age 69, you can stop receiving the spousal benefits and claim your maximum retirement benefit .
Mr. Huck and Mr. Dragstrem gave examples of how the “claim early, claim more later” strategy works. Since wives typically earn less than their husbands, but also statistically outlive them, it is usually optimal for a wife to claim her own early retirement benefits, and once the husband dies, the wife is entitled to his benefit as a widow. Therefore, the wife can claim early retirement benefits at 62 while the husband waits to take his benefit. Once the husband reaches his full retirement age, he can claim a spousal benefit. Then at 69, the husband can claim the maximum amount of his own retirement benefit and stop receiving the spousal benefit. If the wife is the higher income spouse, the strategy would work in reverse.
Illustration: Beginning at age 62, Mrs. Dough gets $978 a month in early retirement benefits. Beginning at age 66, Mr. Dough receives a spousal benefit of $767 a month (50 percent of his wife’s full retirement benefit of $1,534/month). Then, at age 70, Mr. Dough stops receiving the spousal benefit and begins receiving $3,209 a month (the maximum amount of his retirement benefit).
The Social Security rules are complex, and individual circumstances differ, so when it comes to adopting a benefit strategy, one size does not fit all. Mr. Huck and Mr. Dragstrem counseled their audiences to consult with a financial planner or an estate planning professional before making elections that lock you into a long-term Social Security benefit that is less than optimal.