MONEY TALKS - I am sure that more than a few of you have had the pleasure of walking into your local Social Security Administration’s (SSA) office, waiting in a seemingly endless line, only to be told by the “good-humored” clerk that you don’t have the proper documentation needed. I can’t prove it but I think the SSA and the Registry of Motor Vehicles hire from the same talent pool. In the event you didn’t get all the information you were looking for during your last visit, here are a few secrets that are worth knowing.
Spousal Benefits - At your full retirement age (FRA), assuming your spouse has filed for benefits, you have the option of collecting the higher of your own social security retirement benefits or one-half of your spouse’s benefits. The advantage of this strategy is two-fold. The first is that you are bringing in an income stream that is potentially larger than it would have been had you collected on your own. Secondly, while you are collecting the spousal benefits, your own benefits are earning delayed retirement credits. This means that, despite collecting spousal benefits in the interim, your own benefits continue to increase 8% per year from age 66 to 70. Assuming your benefits have grown to be larger than the spousal benefits by age 70, you can elect to claim your own higher benefits at that time. If your benefits are still less, then you have lost nothing and can continue to collect the spousal benefits.
File and Suspend - The file and suspend strategy is a lucrative technique that is relatively simple yet underutilized. To implement this plan, the higher earning spouse files for Social Security benefits at their FRA and then immediately suspends their benefits. The major advantage of this is, that, upon suspension, the higher earning spouse continues to earn delayed retirement credits until age 70. However, by filing first, they have qualified their husband or wife for spousal benefits. The lower earning spouse can then begin to collect spousal befits while their own benefits earn delayed retirement credits. This allows both the husband and wife to earn delayed retirement credits while collecting an income stream four years earlier than they would have had they not made these elections.
Lump Sum Payout - If you delay applying for your Social Security benefit and later decide you need the money, you have the option of requesting a lump sum payout. This can be particularly useful for an individual who has an unforeseen circumstance such as a medical emergency. Traditionally the way this works is Social Security will pay you a lump sum equal to six months of retroactive benefits. Going forward, your monthly benefit is reduced to the amount it would have been, had you began collecting six months earlier. However, there is a way to eliminate the six month constraint and collect all of your retroactive benefits as a lump sum. If you had elected to file and suspend, rather than simply delaying your application for benefits, you would be entitled to a lump sum equal to all of your suspended benefits. The simple act of filing and suspending cost you nothing; yet, it gives you the reassurance that you will have access to a much larger lump sum payment in case of emergency.
Divorced Spouse Benefits - Similar to spousal benefits, if you are divorced, you are entitled to half of your former spouse’s benefits as long as you are single, were married 10 or more years, and are at least 62. Luckily, any uncomfortable conversations with your former spouse can easily be avoided because this election can be done directly through the SSA without their involvement. Not to mention, when you collect retirement benefits from a divorced spouse, it has no effect on their benefits. It should also be noted, unlike the regular spousal benefit, if your former spouse qualifies for benefits but has yet to apply, you can still take a benefit on their record provided you have been divorced for at least two years.
Survivor Benefits - If you are a widow or widower you are eligible to collect up to 100% of your diseased spouse’s benefits. While you may begin collecting benefits as early as age 60, your benefits will be reduced if you begin collecting them before your FRA. Also, unlike spousal benefits, survivor benefits reflect delayed retirement credits. This means that, if your spouse delayed taking social security until age 70, it would result in a higher survivor benefit for you than if they had filed at their FRA. If for some reason you begin collecting survivor benefits early and your own retirement benefits are more than your survivor benefits, you may switch to your own benefits anytime between age 62 and 70. Moreover, it should be noted that ex-spouses that have not remarried before the age of 60 can also take advantage of survivor benefits.