I had dinner recently with friends I hadn’t seen for years. Darren’s 67. His wife, Suzy, is 62. Somehow the topic of Social Security came up. Suzy, I learned, was already collecting her retirement benefit. Darren told me he’s waiting till 70 to collect his.
Within 15 seconds, I made them $15,000 in free Social Security spousal benefits.
I told Darren, “Tomorrow, file with Social Security, but just for your spousal benefit based on Suzy’s work record. You’ll receive half of her full retirement benefit through age 70.”
“But,” said Darren, “I thought they changed the law to keep people from collecting a spousal benefit while waiting to collect their retirement benefit.”
“They did,” I replied. “But they grandfathered those born before January 1, 1954. You’re were grandfathered! So get up early tomorrow and file a restricted application at the local office — just for your spousal benefit. Given the size of Suzy’s full retirement benefit, you’ll get an extra $425 per month for free or this will mean about $15K over the next 3 years. And, by the way, you’re paying for dinner.”
“Fantastic,” said Darren. “Order whatever you want.”
“I wish I had talked to you a year ago.” I bemoaned. “You should have filed just for your spousal benefit the day you turned 66. Or the other hand, it may well be that Suzy filed a year or two too early. In taking benefits early, she enabled you to collect a free spousal benefit. You didn’t know it, but she did. However, because she filed early, her own retirement benefit will be permanently reduced.”
“Well, $15K is just fine.” said Darren.
There are millions of couples who can do what Darren and Suzy are now going to do. And the amount of available free spousal benefits can be as high as $67,000. The strategy will, to repeat, only work if the spouse who was grandfathered has not yet filed for his or her retirement benefit and the other spouse has filed for their retirement benefit or is willing to do so.
How about divorcees?
They too can collect a free spousal benefit (called a divorced spousal benefit) for up to 4 years (between full retirement age and 70) provided they were married for 10 or more years, their ex is over 62 and either a) they have been divorced for more than 2 years or their ex has started collecting their retirement benefit.
As we waited for the check, Darren asked, “Any other tricks up your sleeve?”
“There are. You may do even better by taking your retirement benefit earlier than 70 so that Suzy can start collecting an excess spousal benefit off of your record. Since your retirement benefit is much higher than hers, this strategy could produce more than the $15K in higher lifetime benefits.”
“Or,” I continued, “it may be optimal for Suzy to suspend her retirement benefit at full retirement age and restart it at 70 when it will be almost 30 percent higher. Once she suspends, her own retirement benefit will stop and she won’t be eligible to collect any benefits off of your record. Nor can anyone collect any benefit off of a suspended benefit while the benefit is in suspension. But, in your case, you’ll be 70 and collecting your own retirement benefit by the time Suzy hits full retirement age. So it may be optimal for her to suspend. It depends not just on your own full retirement benefits, but also Suzy’s birth date and the maximum ages to which you two might live.”
“So it’s complicated.” said Darren.
“Very.” I answered.
“How’s anyone supposed to figure out precisely what to do?” asked Darren.
“That’s where my company’s software tool comes in. Run it. You can afford the 40 bucks. It will consider thousands, possibly tens of thousands of alternative joint strategies to figure out precisely the one that maximizes your and Suzy’s remaining lifetime benefits.
“That many.” said Darren.
“Yes.” I said. “There is a ton of options given the different months in which you can both can take particular actions and given the different benefits at play. This includes the widows benefit for which Suzy will be eligible once you die.”
“By the way, I said. The Social Security officials at the local office may not realize you are eligible for free spousal benefits. It they tell you that you aren’t, show them the PDF from my program. If they still get it wrong, ask to speak to a supervisor or call me from the office. I’ve talked to many a supervisor in real time. It’s amazing how quickly they change their tune when they realize someone speaks their language and may be onto their mistakes.”
“My other warning is this. Make sure you specify in the comments section of the application that you are filing a restricted application — just for spousal benefits and that you plan to wait to file for your own retirement benefit. If the staffer you deal with mistakenly files you for both your spousal and retirement benefit, your retirement benefit will start immediately and you’ll get a zero excess spousal benefit given you earned much more than Suzy. This will reduce, not increase your lifetime benefits. Our software will indicate the payment you receive. If it’s bigger than what the program says, they screwed up. The Social Security staff are well meaning, but they are overworked, underpaid and undertrained. This, by the way, is due to Congress not properly funding the program. In any case, the staff routinely get things wrong. And their mistake can become your mistake. If you don’t write precisely what you’ve told them to do in the comments section, you’ll have no way to appeal their mistake.”
After dinner, I wrote this column realizing that there are as many as 13 million Darrens and Suzys out there who may be leaving lots of free money on the table. This includes those who are grandfathered and have filed within the year for their retirement benefit. They still have the option of filing an application to withdraw their retirement benefit and repay all the benefits they’ve received. Once the retirement benefit application is withdrawn, one can file just for a spousal benefit.
I’ve written extensively in the past about free spousal benefits and the many other ways people can maximize their lifetime Social Security benefits. I’ve done so in my co-authored, best seller, Get What’s Yours – the Revised Secrets to Maxing Out Your Social Security and in my Forbes blog.
Laurence Kotlikoff is a professor of economics at Boston University, a Fellow of the American Academy, a Research Associate of the NBER, and President of Economic Security Planning, Inc. – a company that markets personal financial planning tools at maxifiplanner.com, maximizemysocialsecurity.com, analyzemydivorccesettlement.com, and economicsecurityplanning.com.
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