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What Every Investor Should Know About Planning And Saving For Retirement
I’m going to be talking about Social Security spousal benefits.
This video is part of a series I put together all about Social Security. So if you missed any of the other videos, be sure to check those out. I’m going to put some links here in the description for this video so you can check those out after you finish watching today. Also, we have a Social Security guide that’s available on our Free Resources section of MoneyEvolution.com, and I’ll put a link here in the description for that guide as well.
Social Security Spousal Benefits, if you’re married, as you probably know, you may be entitled to Social Security spousal benefits even if you never contributed to Social Security yourself. Your spousal benefits are actually equal to up to 50% of your spouse’s primary insurance amount at your full retirement age.
So just to kind of refresh there, your primary insurance amount is the amount that you’re eligible for at your full retirement age. If you decide to, you can collect those spousal benefits early, but they will be reduced. So for example, you can take spousal benefits as early as age 62, but you’re only going to get 35% of your spouse’s primary insurance amount, and then that adjusts a little bit upwards every year until it maxes out at age 60, where you’re eligible for up to 50% of your spouse’s primary insurance amount. This by the way is for people whose full retirement age is age 66. If your full retirement age is 67, these numbers will be a little bit lower for anybody that’s full retirement age is 67. So as a married couple, there is some opportunity to coordinate your benefits and maybe maximize the benefits between you and your spouse with a couple of different strategies.
Unfortunately, there were a couple of rule changes that went into effect as part of the Bipartisan Budget Act of 2015, so some of these strategies have either been eliminated or are in the process of being phased out. And primarily, those two strategies are the file and suspend strategy and the filing of restricted application strategy. If you haven’t seen it, I’ve got a video where I get into all the details on those two strategies, as well as how the Bipartisan Budget Act affected the ability to be able to use those strategies. So let’s talk a little bit about some of the best ways that we might be able to coordinate our Social Security spousal benefits. And to do this, we’re going to use a couple of hypothetical examples here.
The first example we’re going to use is going to be Don and Betty. They’re both 62 years old, and Don and Betty are a little bit more of what we would refer to as a traditional couple. So Don was the primary wage earner, Betty was a little bit more of a stay-at-home mom that was raising their kids. She did work a little bit outside the house, so Don has a primary insurance benefit of $2,000 a month, and Betty has a primary insurance amount of $700 a month. So let’s think for a little bit about what might be the best strategy for Don and Betty to be able to coordinate their benefits and really maximize the amount that they could get from social security?
So one option would be of course for Don and Betty, because they’re 62 years old, they are both eligible to begin collecting Social Security benefits. So they could turn that on right away. They would take a 75% discount to their primary insurance amount but the other thing that we want to think about here as well is because Don has a benefit that is so much higher than Betty’s, it would be nice if we could also possibly delay Don’s benefit to enhance the survivor benefit if Don should predecease Betty.
So let’s think about the best way to do this. So one strategy might be for Betty to go ahead and turn on her benefit right away at age 62. And to do that, she would actually take a 75% discount, which would mean that Betty would actually begin collecting $525 a month in Social Security benefits based off of her work record. Don would delay collecting Social Security benefits to at least his full retirement age, to age 66. And at age 66, Don could do one of two things. If Don turned his own benefit on at age 66, he would be able to collect that $2,000 a month. But the other thing that would happen is because Don filed for and started collecting benefits, Betty could then switch over and begin collecting 100% of her spousal benefit, which would be $1,000 a month. So she would bump up from 525 to $1,000 a month by converting over to her spousal benefit.
The other strategy that Don and Betty could do is Don could continue to delay collecting Social Security benefits all the way to age 70, earning those delayed retirement credits of 8% per year, and he could bump up from $2,000 a month to $2,680 a month at age 70. One important thing to talk about here though is because of the Bipartisan Budget Act of 2015, we no longer have that ability to file and suspend benefits. So under the old rules of file and suspend, Don could have simply just filed for benefits at age 66 but suspended them immediately, allowing Betty to claim spousal benefits off of Don’s work record, bump up to that $1,000 a month while still earning delayed retirement credits. Now, under the new rules, you have to actually be collecting benefits in order for somebody else to collect benefits based off of your work record. So I hope that makes sense, but here’s one strategy of how coordinating benefits could give them some ability to really maximize that amount that they can get from Social Security.
Now let’s take a look at another example here to another hypothetical couple. Here we’re going to talk about Howard and Beth. Now Howard and Beth are a little bit different couple then Don and Betty. Howard and Beth both earn pretty good Social Security benefits based off of their own work record. Howard’s actually eligible for $2,400 a month at his full retirement age, which is age 66. And Beth is eligible for $2,200 a month at her full retirement age, which is 66 also. We’re going to assume that they’re both 64 years old right now. So what options do Howard and Beth have available to them?
Well, of course because they’re both over age 62, they could begin collecting reduced social security benefits right away, to be reduced from their full retirement age benefits. They could both wait until their full retirement age and begin collecting their full un-reduced Social Security amounts, $2,400 for Howard and $2,200 a month for Beth. Or they could wait past full retirement age and earn delayed retirement credits earning an increase every year to as late as age 70. But there’s another option available to them. There is actually a way that Howard and Beth could coordinate their benefits to actually get a little bit more potentially out of the Social Security system.
So let’s assume that Beth at age 66, her full retirement age, let’s say that she begins collecting her $2,200 a month full retirement age benefit. Howard can, at that time, file and begin collecting spousal benefits only based off of Beth’s work record. So Howard could begin collecting $1,200 a month at his full retirement age as a spousal benefit. Now they’re able to do this because they were both at least 62 years old before the December 31st 2015 deadline where the Bipartisan Budget Act of 2015 kicked in. So if they weren’t at least 62 years old before that December 31st 2015 deadline, they would not be able to file what is known as a restricted application. So Howard can take the $1,200 a month and allow his own benefit to continue to grow, earning those delayed retirement credits all the way to age 70. So he’ll actually get 132% of his full retirement age benefit, and this works out to be $3,168 that Howard would be able to collect at age 70. So he did a couple of things. He got a little bit of money in the meantime here between ages 66 and 70, collected that $1,200 a month so he was at least getting some income coming in, but he also maximized the full retirement benefit that he was eligible for, which is this 3,168 at age 70. The other thing he did to is because this amount will be more than what Beth is collecting, it also helps Beth out because now this is a survivor benefit for Beth as well if Howard should predecease Beth.
So I hope that makes sense. I hope that hopefully helped you with getting some ideas on some of the best ways to maximize your Social Security benefits. As you can imagine, there’s literally dozens and dozens of different combinations of ages and benefits, so I hope that the couple of examples that I shared with you here today give you at least some idea of the possibilities on how you can coordinate your benefits with your spouse to maximize the amount you get from Social Security.
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