Social Security Secret Strategies


Eighty million Baby Boomers are headed for retirement and for many, Social Security will be the centerpiece of their retirement income plan. Today, I’ll reveal three little-known strategies that just might put thousands of dollars in your pocket.
First, let’s begin with a few basics. If you were born between 1943 and 1954 you can claim a full Social Security benefit at age 66. Beginning at age 62, you can take a reduced benefit equal to 75% of your full benefit. If you choose to wait beyond your full benefit age, your benefit increases 8% per year until age 70 (called Delayed Retirement Credits). A spouse can choose to receive his or her own benefit based on his or her own work record or he or she can choose to receive a spousal benefit equal to one-half of his or her spouse’s benefit. It’s worth noting that a divorced spouse, who was married at least ten years, also retains both of these options. Finally, a widow or widower may receive his or her deceased spouses’ benefit or he or she may elect to receive his or her own benefit based on his or her own work record. This widow/widower benefit can be taken as early as age 60. It’s within these multiple choices that lay the secret strategies.
Strategy #1: The Widow/Widower Strategy. By way of an example, let’s assume we have a couple where the husband is age 62 and the wife is age 60 and both have worked and therefore each has Social Security benefits. Assume the husband dies at age 62. Should the wife claim a widow benefit or wait and claim benefits based on her own earnings? As a widow she is eligible for 100% of her husband’s benefit if she waits until his full retirement age (age 66). She could begin her widow benefit as early as age 60 but the benefits will be reduced.
She should consider taking her widow benefit, perhaps as early as age 60 and then switch to her own benefits once she turns age 70. This strategy allows her to begin receiving income early while delaying her own benefits thus allowing her own benefit to increase to the maximum amount. It also allows her to make use of both her husband’s benefit and her benefit verses just her benefit.
Strategy #2: The 62/70 Strategy. In this example, let’s assume that our couple is both age 62 and we anticipate that both will live until or beyond their normal life expectancy. Instead of each taking their own benefit early at age 62 or waiting until their age 66 full benefit, the wife takes her early benefit at age 62 and the husband takes a spousal benefit at age 66. Once he turns age 70, he switches to his full benefit and she switches to a spousal benefit equal to one-half of his age 66 full retirement benefit or she continues her benefit, whichever is higher. Remember that if the husband were to die first, the wife would then step-up to 100% of the husbands age 70 benefit! Under these case facts, the earliest the husband can take a spousal benefit is age 66.
Strategy #3: The File and Suspend Strategy. In this example, let’s assume only the husband worked while the wife stayed home to raise the children. Here, the husband could begin his full benefit at age 66 then immediately ‘suspend’ his benefit. The wife then begins a spousal benefit equal to one-half of his full (but suspended) benefit. At age 70, he ‘un-suspends’ his benefit which has now grown to the maximum benefit amount including the 8% per year ‘Delayed Retirement Credits’ from age 66 to age 70.
It’s important to note that in each case example, the individual facts are vital to choosing the best strategy. Particularly in strategies one and two, case facts might drive you to reverse the order of which spouse’s benefit you choose to begin first. You need to ‘run the numbers’ under various options or have your financial advisor assist you in making this decision. Making the right choice could mean tens of thousands of dollars of additional Social Security benefits.