Social Security Secrets, Part 2
If you don’t know the rules of collecting Social Security benefits, you can be leaving money on the table! Guest writers Frank and William Rainaldi expose the secrets of spousal Social Security benefits in this series.
Did you read Part 1 of this series on Social Security secrets? If not, click social security secrets to review the first 3 Social Security enhancements available to workers who wait until Full Retirement Age (FRA) to receive their benefits.
They are:
- No reduction in retirement benefits
- No earnings limit
- The availability of Deferred Retirement Credits
Today, we’ll cover the other two benefits of waiting until FRA to collect benefits.
Spousal Benefits
Are you married? If so, there’s even more you need to know about cashing in on your Social Security retirement benefits. There are two critical benefit enhancements that are only available to married workers.
The concepts of “File and Suspend” and “Spousal Only” are the keys to properly coordinating and understanding your spousal benefits. Hang in there; this is complicated stuff! We’ll try to cut to the chase and give you one example of how the spousal enhancements can be used to maximize your benefits.
Let’s assume Mr. and Mrs. K both attain their Full Retirement Age of 66. If they delay their benefits until age 70, they qualify for their 8% Deferred Retirement Credits (as you read in Part 1). Assume further that Mr. K’s Primary Insurance Amount is $2,000 and Mrs. K’s is $1,200.
Mr. and Mrs. K would like to accomplish the following:
- They would like the spouse with the lower Primary Insurance Amount (Mrs. K) to qualify for a spousal benefit.
- Mr. and Mrs. K both want to qualify for their 8% Delayed Retirement Credits. At age 70 their respective benefits will increase by a whopping 32%.
The “File and Suspend” Option
At Full Retirement Age, a worker is allowed to “File and Suspend” his retirement benefits. In essence, you go to the Social Security office, file the paperwork to begin collecting your benefit, then say “never mind.”
Under normal circumstances, the 50% spousal benefit is simply not available until the other spouse begins collecting his personal benefit. Let’s get back to our example and see how the “File and Suspend” option makes the spousal benefit available to Mrs. K.
When Mr. K Files and Suspends his benefits, for spousal benefit purposes he is deemed to be receiving benefits even though he’s not. This opens the door and allows Mrs. K to qualify for her spousal benefit. The sole purpose of Mr. K filing and suspending his benefits is to make Mrs. K eligible for hers.
But we have one more problem before Mrs. K qualifies for her spousal benefit. Mrs. K’s spousal benefit would be $1,000 (50% of Mr. K’s $2,000 Primary Insurance Amount). No spousal benefit will be payable. Why? Because Mrs. K’s $1,200 personal benefit is greater than her $1,000 spousal benefit. Thus, no spousal benefit will be payable because her personal benefit is included in the spousal benefit. This is where the Spousal Only option comes into play.
“Spousal Only” Option
Since Mrs. K has also reached her Full Retirement Age, she has the right to file and have her spousal benefit based solely on Mr. K’s Social Security earnings. This means Mrs. K’s $1,200 personal benefit will not be considered part of her spousal benefit. This so-called “Spousal Only” option allows Mrs. K to qualify for her $1,000 spousal benefit.
Best of all, this arrangement also allows both spouses to qualify for their Delayed Retirement Credits. To qualify for the delay, a worker must reach Full Retirement Age and not be receiving any of his/her personal benefits until age 70. We now must ask “Is either spouse receiving a personal benefit prior to age 70?” If no, they will qualify for their 8% credits.
Mr. K is not receiving any benefits when he Files and Suspends his personal benefits to age 70. So his personal benefit will qualify for the 8% credits and increase from $2,000 to $2,640.
Mrs. K’s spousal benefit is based solely on Mr. K’s Social Security record. Thus, she is not receiving any of her personal benefits. Therefore, she qualifies for the delayed credit and her $1,200 personal benefit will increase by 32% to $1,584 at age 70.
Some of you may wonder why Mrs. K would give up her $1,200 personal benefit to receive a $1,000 spousal benefit. This is the only way she can receive a spousal benefit and have her $1,200 personal benefit grow to the same amount ($1,584) she would’ve received without the spousal benefit. Mrs. K will receive the $1,000 spousal benefit from age 66 to 70. That’s $48,000 of additional benefits!
At age 70 she will say “I don’t want my $1,000 spousal benefit anymore. I now want to take my $1,584 personal benefit.”
This is just one example involving the coordination of spousal benefits. It’s a very complex subject. In most scenarios the married workers will have several spousal combinations to consider. As mentioned earlier, the benefits of delaying one’s retirement to age 70 are enormous!
So keep this in mind, and if you’re not sure about your Social Security retirement benefits, seek professional help. There’s a lot at stake, so don’t be left on the sidelines.