Strategies upon Retirement when deciding when to take Social Security Retirement

After much criticism about my short answer to the question on when to take retirement income, I decided to do some research and develop a more detailed answer. I admit that for couples with income available to supplement social security retirement, to simply say taking benefits at full retirement age may have been inadequate. For those people who do not have access to additional income after reaching full retirement age, taking benefits at full retirement age, may still be good advise.

I am focusing only on a strategies that may benefit married couples who have access to additional income upon reaching full retirement age. Strategies that hopefully will maximum the life time income that could be received because of retirement. Keep in mind that even though you may maximize life time income, you may not increase your monthly income for a few years, and as such, may not result in an increase in monthly benefits upon retirement.

You should contact the Social Security Administration to determine your full retirement age, if you are unsure of what age you qualify for full retirement. The first strategy involves one spouse upon reaching full retirement age, to file for social security retirement, and immediately suspend his own or her own benefits. The filing spouse would not claim his or her benefits until a later date, i.e. age 70. The filing spouse would than have his or her non-filing (younger spouse) file and claim dependent benefits. The filing spouse with suspended benefits, would still have his or her benefits increase 8% a year until he or she decides to take retirement benefits. In today economy, an 8% per year increase in any investment is not bad.

This strategy only works if the dependent spouse, in his or her own right would not receive more in his or her own more than dependent benefits based upon the filing spouse. In other words, it is intended for the situation where the non-filing spouse did not work outside of the home, or did not work long enough to qualify for benefits.

What about couples who both earned a good income during their working careers, how does this strategy benefit them?

Both spouse would have to wait until each has attained full retirement age.¹ If one spouse is older than the other, the older spouse would 'file and suspend' benefits. When his or her spouse has attained full retirement age, both are then eligible for either a spouse's benefit and a retirement benefit in her or his own. The lower earning spouse has an option to claim 100% of his or her own retirement or a spousal benefit on the other spouse's record and receive up to half of what the other spouse is entitled to at his age. The spouse with the lower life time earning, may benefit from claiming a spousal benefit and restrict his or her benefit to that amount (maximum being 50% of the other would be entitled if claiming retirement).

Obviously, this leave the couple much less then if both took 100% retirement at each parties full retirement age, the benefit accrues in both of them in waiting, i.e. the 8% yearly growth plus cost of living adjustments. This may not be an option unless the couple has some method to generate income to cover any short fall created by waiting on full benefits. Remember that after reaching full retirement age, the earnings cap is removed, so you can earn as much as you can without any reduction in benefits.

Assume that the wife is 63 and the husband is 65. Also, assume the husband was the higher lifetime earner. If the husband retires at age 66 and suspends benefits, his retirement entitlement will grow by 8% a year (plus cost of living increases). When the wife attains age 66, she files as a dependent, i.e. restricts her benefits to the amount she is entitled under a spousal benefit. The parties receive this lower amount until the husband reaches age 70 when he claims full retirement benefits. The wife can then claim retirement benefits in her own name. During the four years the husband right to benefits has increased, as has the wife's benefits, they each get more then if they had applied for full retirement benefits at each one's respective full retirement age.

I am not an expert in retirement planning nor in the social security retirement system, my work has always been in the disability arena. If you think these are options you would like to try, you should research on your own. I suggest you contact social security and discuss the situation with them. They can give you good information and assist you in deciding how to handle receipt of retirement benefits to best manage your own situation. I suggest AARP who has publish articles on the subject, Money magazine, Kiplinger as some excellent sources of information to help with this subject. Do not overlook talking with Social Security, they can help with a decision.

Disclaimer: Blogs posted herein are intended neither as legal advice, nor do they create nor attempt to create an attorney-client relationship. The person viewing my blogs is admonished that an attorney-client relationship may only be created with the express consent to the parties to it.

1This requires that both spouses reach full retirement age before proceeding with this strategy. The reason is that if a spouse is under full retirement age when he or she takes dependent/spousal benefits, social security will require that the benefit taken be under the record of the younger spouse. It means that he or she is stuck, permanently, with lower benefits as a result of taking benefits before full retirement age.