Strategic Social Security Income Planning

On November 2, 2015, President Barack Obama signed into law a budget deal that eliminates a key Social Security planning strategy, known as “File and Suspend.”

File and suspend—a strategy that can be worth up to $60,000 for high-earning couples—is available only through April 29, 2016. If you are at least 66 years old—or you will be by April 29, 2016—you can still benefit from all of the strategies discussed below. Married folks who are at least age 62 before the end of 2015 can file a restricted application for only a spousal benefit starting at age 66. The “Wait Until Age 70 to Collect” strategy applies to singles and at least one spouse for couples, unless you have reduced life expectancy. Since the law is so new, we will review our clients’ individual circumstances to plan accordingly.

Regardless of any legal changes, if you or a loved one are in your 50s or 60s, now is a good time to start retirement income planning. Many strategies exist to help you maximize Social Security income, depending upon your family situation and stage of life. But hurry, especially if you’re banking on File and Suspend!

This article touches upon just three strategies that can be worth hundreds of thousands of dollars to many people.

Executive Summary

Before you claim benefits, understand the haircut you’ll take for collecting as soon as you’re eligible and the bonus you’ll get by waiting.

  • At age 62, you’ll get 75% of the benefit that your working earnings translate to
  • At full retirement age, which could be between age 66 and 66 years + 10 months, depending on the year you were born, you’ll get 100% of your benefit; for anyone born in 1960 or later, the full retirement age is 67
  • At age 70, you’ll get 132% of your benefit; that’s a “raise” of 8% per year just by waiting

Social Security is a social insurance program and is not intended to replace all the income you bring in while working. Life expectancies are increasing, so it generally makes sense to wait to start collecting. According to the Social Security website: “Many of us will live much longer than the “average” retiree, and most women live longer than men. More than one in three 65-year-olds today will live to age 90, and more than one in seven will live to age 95.”

Go online to get a personalized statement that spells out your benefits. If you’re under 60, you’ll get a benefit notice in the mail every 5 years. Get started at

When to start drawing benefits depends upon your health, longevity, and cash flow needs. It often makes sense to draw from your investment portfolio first so that your monthly benefits increase past your full retirement age to age 70. This translates into an 8% per year benefit increase.

Below are some Social Security-related strategies our clients have used to increase their wealth. For simplicity’s sake, let’s assume that when a married couple is referenced, the husband is the higher-earning spouse.

Claim Now, Claim More Later (Restricted Application)

NOTE: The strategy below is only available until April 29, 2016, unless you are at least 62 by December 31, 2015, and expect to file a restricted application by age 66. If you are or will be 66 by April 29, 2016, and intend to use any of the strategies below, you must file and suspend with the Social Security Administration by the end of April. Those already using the strategy to collect spousal benefits alone may take their delayed (higher) retirement benefit at 70. Under the new law, retirees may either receive benefits on their own record or their spouse’s record, whichever is higher. Folks will no longer be able to claim on their spouse’s record and then switch to their own higher benefit after earning their 8% annual increase. (See “Wait Until Age 70 to Collect,” below.)

Please contact your wealth planner or CPA to discuss the specifics of your situation.

Who? If you’re married, and you and your spouse both worked and qualify for Social Security benefits on your respective earnings records.

When? Use this strategy when at least one spouse is at full retirement age, or older. To make the most of this strategy, the older spouse should be the higher earner.

How Does It Work? If you are married, once you reach full retirement age, file for benefits but delay collecting your own benefit until age 70. Your spouse will claim a spousal benefit at his/her full retirement age (on your record), and then claim a larger retirement benefit later. In order to claim the spousal benefit, your spouse must have filed for his/her own retirement benefit. Be sure to complete the form to specify that you are restricting the application to the spouse benefit and not collecting your own retirement benefit. This strategy maximizes lifetime benefits, assuming at least average life expectancy.

As long as the higher-earning spouse has reached full retirement age, the lower-earning spouse can claim benefits at full retirement age. The higher-earning spouse collects much larger benefits at age 70, and the lower-earning spouse may also claim larger benefits at 70, depending upon her own earnings record. Waiting until 70 to collect benefits means a permanent 8% raise for each year the higher-earning spouse waits between the full retirement age and 70; waiting may also give a spouse who worked a higher benefit.

File and Suspend (“Watchful Waiting”)

NOTE: If you are or will be 66 by April 29, 2016, and intend to use any of the strategies below, you must file and suspend with the Social Security Administration by the end of April. Those already using the strategy to collect spousal benefits alone may take their delayed (higher) retirement benefit at 70. Under the new law, retirees may either receive benefits on their own record or their spouse’s record, whichever is higher. Folks will no longer be able to claim on their spouse’s record and then switch to their own higher benefit after earning their 8% annual increase. (See “Wait Until Age 70 to Collect,” below.) Unmarried individuals can no longer file and suspend to have the flexibility of retroactive benefits.

Please contact your wealth planner or CPA to discuss the specifics of your situation.

Who? If you are single and want flexibility and a larger lifetime benefit (assuming average or greater life expectancy). If you are married and/or have dependent minor children, you can increase household income immediately and provide for a larger survivor benefit later by using this strategy. It works best for one-earner couples in which one spouse worked full time and the other spouse did not work outside the home, or did not work long enough to qualify for the maximum amount of Social Security retirement benefits.

When? You must be at least full retirement age to use this strategy. You cannot use it if you claim benefits at age 62.

How Does It Work? Social Security was designed long ago when the norm was for husbands to work while their wives raised children. The Social Security benefit structure has not changed. Therefore, when one spouse has made significantly less, Social Security ensures that the lower-earning spouse will not be left without income if the higher-earning spouse dies first.

To use this strategy, file for your retirement benefits at your full retirement age and have your spouse or dependent children collect benefits based on your earnings record. Then, immediately “suspend” your own benefits. (Your benefits will increase by an additional 8% for each year you delay collecting beyond full retirement age, up until you turn 70.) At age 70, you can start collecting benefits at a higher rate than if you hadn’t suspended them.

You must be at least age 66 to file and suspend. A benefit to this strategy is that it holds open the possibility of collecting all previously suspended benefits in a lump sum if you need the cash or discover you are in poor health with reduced life expectancy.

Generally, only one spouse in a couple should file and suspend.

Wait Until Age 70 to Collect

NOTE: The strategy below applies if you are at least age 66 by the end of April 2016. For everyone else, you can claim higher benefits on your own record by waiting until age 70.

Who? Anyone can use this strategy. However, you should be in good health, with at least average life expectancy.

When? Wait until age 70 to collect benefits. If you’re married and will be at least age 66 by April 29, 2016, you can use this strategy with one of the others noted above. If this is not true for you, consult with your financial planner or CPA to determine if both spouses should wait until 70 to collect, or if one spouse should claim benefits at full retirement age.

How Does It Work? File and suspend at your full retirement age. Then, start collecting benefits at age 70.

As long as there is reasonable longevity in your family, wait until age 70 to claim full retirement benefits. You’ll receive more income for life. The benefit to doing so is that for every year you wait to claim benefits between age 66 and 70, you’ll increase your benefit by 8% per year. That’s more than most investment portfolios will earn!

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