This technique can be very helpful to someone who applied at age 62 and has reached full retirement age or even age 70 with adequate other retirement assets in reserve. By repaying and reapplying, you can increase your spending power by 10% or more for the rest of your life. Where else can you get that kind of return for your money?

The current problem is that the SSA considers this strategy to be a “loophole” in the retirement system that needs to be closed. No doubt SSA will get its way and soon. So give it some serious consideration.

For more information about this repay and reclaim Social Security benefit strategy, read the following article from Forbes, written by one of the “Spend ’til the End” consumption smoothing authors, Larry Kotlikoff. He can give you the science behind it.

Get A Bigger Social Security Check Now

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I recommend that you pay a visit as an educational experience. At the end of the final part in the series are links to parts one through six.

It is difficult to understand the nuances of Social Security retirement benefits. This is particularly the case if the interests of a spouse are involved.

The author of the series makes repeated references to the helpful expertise of employees of the Social Security Administration. I have no personal experience with that. I have spent a lot of time reading on the Social Security website.  While it is loaded with helpful information, it is not easy to find all of it. In fact, one of the questions submitted to the expert was where one could find more in-depth reading materials about Social Security planning and strategy. According to the answer, there just isn’t much available that’s accessible by a non-professional.

Here is the link to the final Social Security Q&A:  Answers About Social Security: Part 7

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The Bucks blog in the “Your Money” section of the New York Times is soliciting questions about Social Security. These questions will be submitted to a guest expert who hopefully will be answering a lot of them, perhaps in a consolidated fashion.

I’ve looked at some of the questions. Some people are quite confused and need a good education, starting with reading their annual Social Security statement. Others plead sob stories specific to them. Let’s hope that some of the questions lead to good advice about different benefit strategies for workers and their spouses.

To ask questions and/or read the answers, here is the link to Taking Questions on Social Security.

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Ridiculous.

It is very convenient for Wall Street billionaire Pete Peterson to go after Social Security, a lifeline of middle-class retirees. He won’t be needing those monthly Social Security checks. He can fall back on the millions he extracted as CEO of Lehman Brothers which failed in the market crash. He’s a genius with money and now he wants to take ours away.

The fat cats are furious with the AARP because it vigorously opposed granting this bogus “fiscal responsibility commission” any legal authority. The AARP is far from perfect but when it sticks up for a system into which baby boomers were forced to pay billions of dollars, I’m all for it.

The problem is not Social Security. The problem is that Congress keeps spending and wasting Social Security contributions on other programs (including Wall Street bailouts), giving IOUs in return. Now the Pete Petersons are whining that Congress can’t afford to make good on the IOUs. That argument is too little, too late.

I still think that Social Security retirement benefits will become “means tested” such that rich people don’t receive any. Fair enough, as long as it is really limited to rich people like Pete Peterson.

Either way, keep an eye on this issue because it may influence when you decide to claim your benefits. There will have to be a cutoff age for any significant changes in the benefit system. I plan on receiving the benefits which were promised to all of us, over many years. What about you?

Here is the link to the entire article:  Here comes Wall Street’s attack on Social Security

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First, we will assume that you will be collecting Social Security as a U.S. citizen. Given that, this is a summary of the rules that will apply to you:

1.  You may collect and receive Social Security benefits while living outside the United States for as long as you would be eligible to receive them if you lived in the U.S.  For retirement benefits, that’s indefinitely.

2.  For purposes of the SSA, being “outside the U.S.” means being outside the 50 U.S. states (and the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, the Northern Mariana Islands or American Samoa) for 30 days consecutively.

3.  The Social Security Administration can send your benefit to any country where you may choose to live, except Cuba and North Korea. (Please don’t think about retiring there!)

4.  You must report your change of residence to the SSA, even if your retirement benefits are sent to a bank account.

5.  If you work overseas for an employer that does not withhold Social Security taxes or receive a pension/retirement benefit from a foreign government or employer that did not withhold Social Security, your Social Security Retirement benefit may be reduced by the Windfall Elimination Provision.

For more information about collecting Social Security retirement benefits while living abroad, download this government pamphlet.

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Using the claim-and-suspend method, one spouse files a claim for his or her Social Security retirement benefit, then immediately volunteers not to receive that benefit. This is called  ”suspending” the benefit. What this does, however, is allow the spouse to claim and receive a spousal benefit based on the suspended benefit of the other spouse. Meanwhile, the spouse that claimed then suspended can continue to accrue work credits for an increased benefit at age 70. I have written about this in the past, when I discussed different concepts in Social Security spousal benefits. That post and a few others like it generated a lot of questions sent to me, asking for further clarification.

Here are some potential areas of confusion that may lead to problems or mistakes:

1. Claiming and suspending may work best (if at all) only if the “claim and suspend” spouse has a larger work record and benefit. According to Social Security rules, a person claiming retirement benefits must receive the greater of the benefit to which he or she is “entitled”, either the spousal benefit (e.g.,  the benefit based on the spouse that has filed and suspended) or based on his or her own record. The maximum spousal benefit is 50% of the suspended benefit. Let’s assume that the husband is entitled to $1,500 a month based on his own work record. His wife is entitled to a $600 a month on her record. The husband can file for benefits at full retirement age then suspend them. The wife can file at full retirement age for a spousal benefit and receive $750 a month, earning the couple an extra $150/month. (A worker who claims and suspends is still technically “entitled” to receive the suspended benefit.)

But watch what happens if the couple have relatively equal earnings histories and each try the “claim and suspend” strategy. In this scenario, let’s assume that the husband is entitled to a suspended Social Security retirement benefit of $1,200 a month. His wife is entitled to receive a benefit of $1,000 a month on her own work record. Thus, in each case, the benefit based on the personal work record is larger than 50% of the potential spousal benefit. ($1,200 is greater than $500, and $1,000 is greater than $600.) If each spouse claims and suspends, neither spouse would qualify to receive any benefit because his or her own benefit (now suspended) would be larger than the spousal benefit. The entire strategy backfires.

2. Claim and suspend only works at full retirement age. Under existing SSA rules, a worker can claim and then suspend a retirement benefit only after reaching full retirement age. The delayed work credits then accrue at 8% annually until age 70, at which time you should “unsuspend.”

3. The spousal benefit can be permanently reduced. If one spouse is younger and the older spouse “claims and suspends” there is a potential problem with the strategy. If the younger spouse files a claim for a spousal benefit before reaching full retirement age, the spousal benefit will be less than 50% of the suspended benefit. (Only those who have reached full retirement age can receive a full 50% spousal benefit.) The amount lost will depend on the number of months before full retirement age. What some folks don’t understand (and what I believe to be the case)  is that this decreased spousal benefit percentage is permanent. Even if the younger spouse later claims a Social Security retirement benefit based on his or her own work record, that benefit will be reduced by the fact that he or she had previously filed for a spousal benefit before reaching full retirement age.

4. The spousal benefit does not increase with the suspended benefit. Some people believe that the spouse claiming a spousal benefit based on the other spouse’s suspended benefit will get an increased spousal benefit when the other spouse reaches age 70 and “unsuspends.’ My interpretation of Social Security rules is that this is not the case. The maximum spousal benefit is 50% of the “Primary Insurance Amount” which is the benefit at full retirement age, period. (If I am wrong on this, I’m sure some observant reader will tell us in a comment.)

As always, rules can be changed and be subject to different interpretations by those in charge. My point is not to make assumptions that “claim and suspend” will maximize your lifetime Social Security income as a married couple without digging deep into the rules and the numbers.

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A recent academic study demonstrated that many Americans approaching retirement lack basic knowledge of how Social Security retirement benefits work and how the rules might affect them. This ignorance can lead to a failure to claim benefits that should be received. Money that should go to retirees is being left on the table.

So how much do you know about Social Security? Let’s find out by using the four important questions asked in the survey.  Write down your answers then scroll down to the correct information below:

1. What’s the minimum age for you to begin collecting Social Security retirement benefits?
2. What’s the earliest age at which your are entitled to full benefits that cannot be reduced by any outside earnings?
3. If you delay claiming Social Security, what’s the maximum age at which your benefits will no longer increase each year (other than cost of living adjustments)?
4. How many years must you have worked to be eligible for Social Security payments when you retire?

Here are the correct answers and the survey results:

1.  The minimum Social Security eligibility age is 62.  (48 percent of survey participants got this right.)

2.  Depending on when you were born, your full retirement age is between 65 and 67.  (Approximately 2/3 of those surveyed answered this correctly.)

3.  Once you reach age 70, benefits no longer increase.  (Only 23 percent of survey participants knew this.)

4.  To earn the minimum work credits for Social Security retirement benefits, you must work the equivalent of 10 years  (or 40 quarters of earnings over a longer period).  (Only 22 percent of those surveyed answered this question correctly.)

So how did you do?

If you didn’t know the answer to all of these important questions that can affect your retirement income, I encourage you to do some reading. You can start right here because I’ve done a lot of research and writing about Social Security myself.  You can find it all by scrolling over “Retirement Planning” in the navigation bar above, then selecting “Social Security” from the drop down menu. Or, go straight to this Social Security category page.

It could mean more money for you.

Photo credit:  Marco Bellucci

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Claiming a Spousal Social Security Benefit

If your spouse is alive and receiving Social Security retirement benefits, you may be eligible to receive a spousal benefit, even if you do not have enough work credits of your own (or have never worked at all).

Eligibility begins at age 62. The maximum spousal benefit is 50% of what your husband or wife receives. However, if you retire and claim the spousal benefit before your full retirement age (typically 66), the benefit will be less than 50%. This reduction in benefit depends on how many months before full retirement age you begin.

If you have worked, you can make a claim for your own benefits and can claim the greater of your own benefit or the spousal benefit. This should be carefully planned to maximize the overall benefit to the spouse.  The Social Security Administration explains it this way:

If your spouse has reached full retirement age and is eligible for a spouse’s benefit and his or her own retirement benefit, he or she has a choice. Your spouse can choose to receive only the spouse’s benefit now and delay receiving retirement benefits until a later date. If retirement benefits are delayed, a higher benefit may be received at a later date based on the effect of delayed retirement credits.

In other words, it may be to your advantage to claim one benefit (e.g. the spousal benefit) earlier than your own, to take advantage of the annual increase in benefits that come from waiting until age 70.

This “claim now then claim more later” strategy can be used even if the spouse continues to work. You (the still working spouse) claim a spousal benefit. While you continue to work,  your own retirement benefit continues to grow at 8 percent a year. Moreover, your additional work credits may increase the size of your benefit as well. When you reach age 70 (the maximum benefit age), you can switch from a spousal benefit to claim your own benefit, if it is greater.

Just don’t forget that if you claim any benefit before full retirement age, that benefit will be permanently reduced.

Social Security Spouse Claim and Suspend Strategy

Another technique  for maximizing total Social Security retirement benefits received by a married couple is to use the “claim and suspend” strategy. This strategy can work if you can afford to wait until age 70 to claim all of your benefits.

The basic claim and suspend method involves the following steps:

1. One spouse claims his or her Social Security benefit. The other spouse signs up for the spousal benefit. The first spouse then immediately notifies Social Security that he or she wants to “suspend” his or benefit. This causes the primary benefit to stop but the spousal benefit continues.

During the time that the primary benefit is suspended, the amount of the benefit will increase by 8 percent a year, until age 70. The spouse then “unsuspends” and collects the larger benefit.

Again, you can use this strategy only if you are at full retirement age and have never collected early benefits.

Surviving Spouse Social Security Benefit

The benefit rules that apply to the surviving widow or widower of a deceased Social Security retiree are different. First, the survivor’s benefit can be as much as 100% of the benefit received by the deceased spouse. This means that if a spouse was receiving a 50% spousal benefit, that can double upon the death of the other spouse. (Not that this a good thing, but it helps a little.)

Second, the survivor’s benefit can be claimed by a spouse who is at least age 60. This is two years sooner than eligibility for a normal spousal benefit.

However, if the surviving spouse claims a survivor’s benefit before reaching full retirement age, the benefit will be decreased by as much as 28.5%, depending on age.

Final Thoughts on Social Security Spouse Benefits

I think the key takeaway from this discussion is this: Never claim your own Social Security retirement benefit without considering: (1) how it might affect your spouse after you die; and (2) how coordinating regular and spousal benefits can maximize the total Social Security payments that you receive as a married couple.

Photo credit:  Travis Jon Alison

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Here are some tips for maximizing Social Security retirement benefits.

2.  Maximize your work credits. Your Social Security retirement benefit is based on your 35 highest earning years. Although you only need ten years of credits to be eligible, you should try to get credits for all 35 years.  Also, don’t slack off so much in the later years that you dramatically lower your average. In fact, you can continue working after you begin receiving Social Security.  You may earn up to $14,160 without reducing your benefit.  Above that, your benefit will be reduced by 50 cents for each dollar earned.

When you reach full retirement age (66-67), the outside earnings limit increases to $37,680 and your benefit is reduced by only 33 cents for each dollar earned above that. The earnings limit includes income from bonuses, commissions, and vacation pay but not pensions, investment income, interest, annuities, and government or military retirement benefits.

After your birthday in the year you reach full retirement age, any amount you earn will not affect your Social Security benefit.  Also, the earnings penalty is not permanent.   Once you reach your full retirement age, your benefit will be recalculated to give you credit for continued working.

3. Plan for spousal benefits. There are two ways for a married couple to simultaneously claim a retirement benefit from Social Security. The first way applies if both can claim a benefit on their own earnings record. The second way applies if one does not have enough earnings. That spouse can claim a benefit equal to 50% of the other spouses benefit.

In many cases, maximizing the total benefit involves this strategy: The higher earning spouse should delay claiming Social Security until at least full retirement age. The lower earning spouse should claim at age 62, based on his or her own earnings record. If the higher earning spouse (often the husband) dies first, the lower earning spouse can then switch to the survivor’s benefit which is based on the benefit received by the now deceased spouse.

If both spouses are working, one spouse can claim a 50% benefit based on the other spouses record, keep working, and then switch to his or her own benefit  later.

Finally, there is the “claim and suspend” strategy. If one spouse doesn’t have a qualifying earnings record, the higher earning spouse can claim and immediately suspend Social Security retirement benefits at full retirement age. This will allow the ineligible spouse to receive a benefit based on the working spouse’s record, yet allow the working spouse to obtain a larger benefit for delayed claiming.

I haven’t mentioned here the “claim, save, and give back” strategy. That is a more complicated way of delaying benefits while receiving an interest free loan from the government.

Consider these strategies carefully because your objective is to maximize your total lifetime benefits as a couple.

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Why the Social Security Start Age is Important

I think the quickest and easiest way to appreciate the importance of your Social Security starting age is to see it graphically.  Therefore, I have borrowed from the Social Security website this graph which represents the different benefit levels for a hypothetical retiree who would be entitled to a monthly benefit of $1000 at his or her full retirement age of 66.

As you can see, the benefit amount is reduced by 25% (approximately 7% per year) if this retiree starts benefits at age 62.  The benefit is increased by 32% (approximately 8% per year) if the start date is delayed until age 70.  (After age 70, the benefit is not increased, except for the cost of living adjustment.)   Considering that these benefit level differences are permanent, making the correct decision is critical.  

Gathering the Data

Any assessment of the Social Security start age needs to begin with gathering all of the important data. This includes your earnings history and your benefit estimate, as determined by the Social Security Administration. The most comprehensive source of this data is your printed Social Security statement that is mailed to you every year. If that is not available, a more abbreviated source of similar data can be obtained from the online benefit estimator.

It is important to remember that the benefit estimates assume that your earnings will continue at substantially the same level until you choose to retire.  This may or may not be important, depending on how many years of Social Security earnings you have in the system. Under current law, your 35 highest years of earnings are used to calculate your benefit amount.

Another important piece of information to consider is your life expectancy.  Knowing (guessing?) this can help you run different “what if” scenarios for different benefit start dates.  Fortunately, there are online life expectancy tools that can provide guidance based on your personal lifestyle and other circumstances.  Do not discount the possibility that you will live 20-30 years after you start receiving benefits.

Social Security at Age 62

This is the age at which (under current law) we are first eligible to claim benefits.  A recent survey of boomers at age 61 revealed that a full 45% planned on starting Social Security at 62.   Apparently necessity is driving some of these decisions but I would be surprised if that is all of it.  Instead, I suspect that a lot of boomers are just not thinking things through financially.  After all, by making this decision, they are surrendering 7%-8% annual raises with cost of living adjustments.

Some of these decisions may be a consequence of just being tired of working.  One option in this situation is to stop working at age 62 and delay claiming Social Security for a few years at least.  During this time, you would live off other retirement assets.  I have previously written about what happens if you use the stop and delay strategy.

Conversely, some early claimants will continue working while on Social Security.  By doing so, they will lose $1 in benefits for every $2 of earned income above $13,560.  However, this reduction in benefits can be recaptured later.

Another issue with starting at age 62 is health care. Medicare eligibility does not start until age 65. That could change if the Obama administration fast tracks plans to institute national health care. If that happens, I’m speculating that the percentage of boomers who start Social Security at age 62 will increase.

Finally, there is the issue of taxes.  If you have income in excess of $25,000 ($32,000 if filing jointly), your benefits are taxable.  The percentage of benefits that are taxable depends on a number of different factors, primarily your total income.  For example, if your other income plus 1/2 of your benefits exceeds $34,000, up to 85% of your benefits are taxable.  Ouch.  Obviously, you need to carefully consider this if you plan on working after claiming benefits at age 62. For more information on taxation of Social Security benefits, read IRS Publication 915.

Social Security at Full Retirement Age

For baby boomers, the full retirement age is 66, give or take a few months.  Three things happen by delaying until your full retirement age.  First, your benefit is substantially increased, permanently.  Second, your benefit is not reduced by having other earned income.  Third, you are now on Medicare.  All good things.

Social Security at Age 70

I have previously analyzed the reasons for delaying the Social Security start date until age 70. The reasons are purely financial and are intimately tied to how long you expect to live.  If you compare the return on investment from delaying to other investments, it’s a real eye opener.

Some people would argue that delaying creates a risk that the rules of the game will change.  I suppose that’s a possibility but unlikely.  For more of my thoughts on this, read I’m Counting on Social Security – How about You.

Impact of Spousal and Survivor Benefits

This is the area where I think a lot of pre-retirees don’t pay enough attention before deciding when to start receiving their own benefits.

A spouse is entitled to claim a “spousal” retirement benefit based on the other spouse’s benefit.  The maximum is 50% of the spouses benefit. For example, if the husband is entitled to a Social Security retirement benefit of $1000/month at full retirement age, the wife can claim a spousal benefit of $500/month.  (Of course, the wife can claim a benefit based on her own earnings, if that benefit is greater.)

To receive the full 50% spousal benefit, the wife must also wait until her full retirement age.  If instead she starts receiving the spousal benefit at age 62, the benefit is reduced to 35%, or $350 in this example.

Thus, for this hypothetical married couple of the same age, the difference between both starting Social Security at age 62 compared to full retirement age is approximately $400/month, forever.

The difference shows up again for a surviving spouse.  When one spouse dies while receiving benefits, the surviving spouse can claim 100% of the other spouses benefit.  (You can’t receive your own benefit or a spousal benefit at the same time.)  Therefore, the different benefit levels between starting at age 62 or waiting to age 70 can continue for many years, until the surviving spouse dies.  That can add up to a lot of money. The related issue is that when only one spouse is alive, the total Social Security benefits received arereduced by 50% no matter what, because the spousal benefit disappears.

Final Thoughts on Social Security Start Age

This is an issue that I am going to continue to study, right up to age 62 and beyond.  Laws could change as could my circumstances.  I will not make a quick decision. When I do make a decision, it will be based on the combined needs of me and of my wife.

Check back because I will likely update this post as I learn new information or come up with some new ideas, including some of the interesting Social Security “give back” strategies.  I would love to hear your thoughts and ideas also.

Photo credit:  Janet Powell

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