Dear Carrie: My wife and I are both turning 66, and I understand that this is “full retirement age” according to the Social Security Administration. Should we both file on our birthdays, or is it better to wait? And could a spousal benefit help us collect more? — A Reader
Dear Reader: Congratulations to you and your wife. I think reaching full retirement age, or FRA, is an achievement worth celebrating. Once you’re both 66, you could certainly toast each other and contact the Social Security Administration to sign up for full benefits. And even if either of you decides to keep working, there’s no problem, because at FRA, your earnings don’t reduce your benefits as they do when you collect early.
However, a little strategizing could possibly make your celebration a bit richer. There are a number of ways in which coordinating benefits with your spouse could put a few more dollars in your pocket over time. So it’s worth looking at the options and running a few scenarios before deciding when to collect. Here are some alternatives to collecting full benefits on your birthdays.
Both Spouses Defer Until Age 70
Just as you could each take full benefits at 66, you could also each decide to wait until up to age 70 to collect. If you do, you will get delayed retirement credits, which increase your benefit for each month you wait to collect up to your 70th birthday (at which time it stops increasing). It adds up to about 8 percent per year. For example, collect at age 68 1/2 and your benefit will increase by 20 percent; collect at age 70 and your benefit will increase by 32 percent.
When you put it in real dollars, that means a $2,000 monthly benefit at 66 would be $2,640 at 70 — a full $7,680 a year more. Multiply that by two and it could be quite a windfall. Of course, whether you can afford to wait depends on your current financial situation, as well as your health and longevity projections. But if you don’t need the money now — and expect to live well into your 80s or beyond — you might appreciate the increase in income later.
Higher-Earning Spouse ‘Files and Suspends’
Another strategy that can be beneficial, especially if one spouse earns more than the other, is for the higher-earning spouse to file for benefits at FRA and then immediately suspend collecting. This allows the lower earner to file for a spousal benefit, which at FRA is 50 percent of the higher earner’s full benefit at FRA. In the meantime, both spouses continue to accrue delayed retirement credits up to age 70. At age 70, the lower-earning spouse could continue to get the spousal benefit or get his or her own full benefit — whichever is higher.
There’s an added positive to this strategy in that not only will both spouses’ individual benefits grow but also the survivor benefits for the lower-earning spouse would be higher should he or she outlive the other.
One Spouse Files for Full Benefits, and the Other Takes Spousal Benefit
If your earnings are more or less equal, you could still take advantage of the spousal benefit to boost your overall income. In this case, at FRA, one of you would file for full benefits and the other would file for spousal benefits only. So, for instance, if your full benefit is $2,000, your wife could collect $1,000 based on your record. In this scenario, your wife would collect $12,000 a year for four years while her own benefits continue to grow until she reaches 70. At that time, she’d file for her own benefits and you’d both be that much further ahead.
A Caveat for Spouses of Different Ages
The fact that you and your wife are the same age makes these strategies a bit simpler. When there is a significant difference in age, the younger person needs to understand that if he or she files before FRA, he or she limits both the options and the monthly check.
For example, if you’re below your FRA and you have accrued credits on your own work record, the Social Security Administration will always pay you your own benefit first. You can’t apply for the spousal benefit only. If you also qualify for a spousal benefit that is higher than your own, you’ll get an increase that brings you up to the higher amount. However — and this is the big caveat — that amount will be permanently reduced for every month you file prior to your FRA. There’s no increase in benefits when you reach FRA, and there’s no chance for delayed retirement credits. If you don’t qualify for your own benefit, you can still file for a spousal benefit at age 62, but that will also be permanently reduced.
As you can see, it’s a numbers game, but it’s important to know the rules. There are several calculators at http://ssa.gov/planners/benefitcalculators.html, allowing you to explore different scenarios. You may also want to seek out a financial adviser who has special expertise in Social Security. This is an important decision, so take the time to review your alternatives. What you decide now can impact your financial security for years to come.
Carrie Schwab-Pomerantz, CERTIFIED FINANCIAL PLANNER ™ is president of the Charles Schwab Foundation and author of “It Pays to Talk.” You can e-mail Carrie at firstname.lastname@example.org.