By Krista McBeath, McBeath Financial Group
Last month we discussed when the best time is to begin taking your social security benefit and what the Social Security Administration defines as your full retirement age (FRA). We also discussed what your primary insurance amount (PIA) is since the Social Security Administration discontinued sending out statements to Americans. This month we are going to discuss Social Security Spousal Benefits.
Receiving a steady Social Security retirement check for the rest of your life can certainly provide peace of mind. No matter what happens, you know that you are going to be receiving monthly income to help support your retirement needs. As we mentioned last month, the age at which you claim your Social Security benefit has a profound effect on the monthly income you will receive for the rest of your life; especially if you are married. In most cases dealing with married couples, there are two benefits to consider: one for the husband and one for the wife. If you play by the rules, the Social Security Administration will give even more options to a married couple that will allow them to maximize their benefits together.
Additionally, if you or your spouse predeceases one another, you will have the option to keep receiving your benefits or switch over to your spouse’s benefit (if it is greater). This provides each of you with a unique and important guarantee of income for both of your lives and one that has historically increased each year.
One of the unique and under-utilized strategies is called “File and Suspend.” Once you reach Full Retirement Age (FRA), you can file for your Social Security benefit and receive 100 percent of your Primary Insurance Amount (PIA). However, just because you file for Social Security does not mean that you actually have to start drawing your Social Security. This strategy is one of the best methods for getting more money from Social Security and it creates several other filing options for a married couple.
This strategy is best explained by looking at an example. Peter and Lois are married. Peter is 65 and Lois is 64. When Peter reaches his FRA of 66, he will file for his own Social Security benefit and suspend. This means he will not actually draw on his benefit. This does a couple of things:
First, this allows Peter’s own benefit to grow to its maximum amount at age 70. (A person’s Social Security benefit grows beyond FRA at a rate of 8 percent per year until age 70 as long as they are not actually taking the benefit.)
Secondly, this allows Lois to file and receive a spousal benefit at her FRA. The advantage of doing this is that her own benefit will also grow to its maximum amount once she attains age 70. A spousal benefit is equal to 50 percent of the retired worker’s PIA so long as both spouses have reached FRA before taking any benefit.
Peter and Lois now have one income from Social Security. Once Peter reaches 70 he will take his maxed out benefit. When Lois turns 70 she will switch from the spousal benefit she was taking to her own benefit, which by age 70 has maxed out also. This claiming strategy was authorized by the Senior Citizens’ Freedom to Work Act of 2000.
It is very important to point out that this strategy only works if both husband and wife wait until their FRA. If either spouse elects to begin taking Social Security prior to their FRA, this strategy is no longer an option. In fact, if a person elects to take their Social Security benefit before they have reached their FRA, they are locked into that amount practically forever. It is very difficult to change a benefit amount once someone has started taking it.
When we look at the demographics of Baby Boomers, typically the husband is older and has worked/earned more throughout his career. This in turn means that he paid more Social Security taxes and is due a larger benefit. This is very important to think about if you want to ensure the highest amount of income for your spouse after you die. You see, if you began your Social Security benefit at 62 and volunteer to take a 25 percent reduction, you’ve also just volunteered your wife to take that same 25 percent reduction for the rest of her life after you pass. However, if you chose to let your benefit grow annually at 8 percent rollup until 70, you’ve just secured your wife additional income for the rest of her life. This is definitely something to think about.
If you missed last month’s article on determining the best year for you to begin receiving social security, you may read it online at HealthyCellsBN.com or contact Krista at 309-808-2224.
McBeath Financial Group can help you understand your options in order to help you make a better, more informed decision concerning your entitlement. They use a proprietary Social Security report that takes a look at five main issues that face people preparing to begin their Social Security payments. You may visit their Social Security Planning site at http://thefinancialhq.com/mfg or call 309-808-2224.
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