When to use 'file and suspend' vs. a restricted claim for spousal benefits.
I continue to receive questions from advisers following my Aug. 20 Social Security boot camp webcast.
This is an excellent query from John, a financial adviser in Eugene, Ore., that succinctly summarizes the confusion related to claiming strategies for married couples.
He wrote to me about a case he is working on where his client, Don, 71, is retired and receives Social Security retirement benefits of $1,729 per month.
Don's wife, Cathy, is 66 — her full retirement age — and about to retire. Her full retirement age benefit is about $1,500 a month.
John said that the couple can afford to delay her Social Security benefit until age 70 to maximize her benefit. Remember, retirement benefits increase by 8% a year for every year an individual postpones collecting them up until 70.
At that point, they would be worth 132% of Cathy's full retirement age benefit — about $1,980 per month — plus any intervening cost-of-living adjustments.
John asked whether Cathy should “file and suspend” so that Don could collect spousal benefits based on her earnings record.
As I told John, that strategy won't work because Don is already claiming his own retirement benefits. Don doesn't get a second bite at the Social Security apple.
Plus, the file-and-suspend strategy is normally used to trigger spousal benefits. As Don is already collecting his own benefits, which are larger than any spousal benefits he would receive on Cathy's record, that doesn't make sense.
However, there is a better way to maximize the couple's Social Security income.
Cathy, who has reached full retirement age and who hasn't yet filed for her own Social Security benefits, could file a restricted claim for spousal benefits. That would allow her to collect half her husband's full retirement age benefit — about $860 per month — for the next four years and switch to her own larger benefit of about $1,980 per month when she turns 70.
By delaying her retirement benefit until it is worth the maximum amount, Cathy would also secure the largest survivor benefit for Don if she died first because her retirement benefit is larger than his.
Survivor benefits are worth 100% of what the worker received or was entitled to receive at the time of death, including any delayed retirement credits, if collected at full retirement age or later.
And if Don dies first, Cathy would keep her own larger benefit. At that point, his smaller benefit would disappear.
