Social Security is not a program intended to replace your full retirement income, but in many cases, it can give you and your spouse a foothold on economic security as you grow older. In May of 2016, Social Security changed many of the rules for collecting your benefits. However, there are still ways to maximize your financial security from the time you retire through the end of your life.
Social Security was created during the time of single breadwinner households. Over the last 50 years, while we may have seen a substantial increase in two breadwinner households, the benefit structure remained the same.
Older couples considering their upcoming Social Security filing may have heard of one of these benefit structures known as File and Suspend. This was a benefit rule that allowed the higher-earning spouse to file and provide for the lower-earning spouse to collect spousal benefits on the higher-earning spouse’s record and then immediately suspend their own benefits to take advantage of delay increases until age 70. Unfortunately, the rule change has excluded those born after April 30th 1950 leaving a bit of confusion in its wake.
Under the new rules, workers applying for spousal benefits will be subject to “deemed filing.” Social Security will assume any application for benefits will include the credit on the worker’s own record as well. The worker is eligible for the higher benefit and cannot choose to suspend their own worker benefits to collect spousal benefits. This removes the potential for the annual growth in benefits not being paid.
Unless you were born on Jan. 1st 1954 or earlier, if you qualify under certain conditions you can restrict your application to just spousal benefits and delay your own retirement benefits, but only if you are of full retirement age or older. Full retirement age is currently 66 for those born between 1943 and 1954, and it increases by 2 months each year (1955-1959) up to age 67 for those born in 1960 and later.
With all the rule changes you and your spouse may be considering just filing when you can and hoping for the best. If you choose this avenue before your full retirement age, you will be receiving your benefit for a longer period of time, but you are missing out on a substantial benefit increase. By delaying the benefits beyond your full retirement age, your benefit could increase each month to an annualized return of 8%. It is worth evaluating the other income options to consider this.
If you are the higher earning spouse and plan on continuing to work or do not need the income right away, it may benefit your income situation to delay filing and earn higher credits for future income potential after age 70, especially if you are in good health.
Those workers that participate in Delayed Retirement Credits can see an overall boost in Social Security retirement income of as much as 30 percent. Delaying your filing will also increase the size of the survivor benefit if you leave behind a spouse or dependent child.
If you are considering a filing delay to maximize your credits, do not forget to sign up for your Medicare at age 65 to avoid coverage delays and increased costs.
If all of this sounds complicated, don’t worry. Your trusted financial advisor is up to date on these changes and can aid you in making the best choices to maximize your social security benefits. Ask for details and explanations so you can be comfortable with the way your retirement plans are shaping up.
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“Finance Made Simple” blog posts are intended for educational purposes and not for specific advice. Each person’s situation is different. Consult your financial advisor for advice relating to topics discussed.