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 The big event? The closing of a legal loophole last month that
permitted married couples to game the system of spousal retirement
benefits through joint claiming strategies. So-called file and
suspend and restricted claims were worth around $35,000 to $60,000
in extra lifetime benefits.
You would have been forgiven for thinking the world was coming to an
end. Enraged near-retirees and media commentators attacked Congress,
President Barack Obama, and even possibly the ghost of Franklin D.
Roosevelt.
But the loophole never made any sense. Created inadvertently with
passage of the Senior Citizens Freedom to Work Act in 2000, it
allowed one spouse to file for benefits and then suspend payments,
while the other claimed a spousal benefit. Both then waited to file
for their own benefit, earning valuable delayed credits.
Couples still hoping to take advantage of the file-and-suspend
maneuver (and who qualified by dint of being born prior to January
1954) needed to start the process by the end of April. What is left
for married couples aiming to maximize their benefits, now that
file-and-suspend has faded into the sunset?
As it turns out - plenty.
Married couples should always consider Social Security as a
coordinated exercise aimed at maximizing their lifetime household
benefits, and they should consider a range of options. Should one or
the other spouse start benefits early, should both delay or should
both file early?
Most often, couples will benefit if the higher-benefit spouse delays
filing to earn delayed credits. Social Security's filing rules are
designed to be actuarially "fair," which means the credits for
delayed filing (and penalties for early filing) should give us all
roughly the same lifetime income - at least, according to the
actuarial tables. You receive about 8 percent less for every year
you file early (starting at age 62), and the same increase for every
year you wait until age 70 - the last year for which additional
credits are available.
Higher-income people tend to live longer, so they stand to benefit
from delayed filing.
"It pays to run the numbers illustrating one spouse starting
benefits as early as possible while the other person waits as long
as possible - usually the higher-earner,” said Jim Blankenship, a
financial planner based in New Berlin, Illinois, and author of “A
Social Security Owner's Manual."
"The idea is to get some income coming in early but also look at the
cumulative lifetime cash flow,” he said.
If you need help running the numbers, check out a free online tool
offered by Financial Engines the big advisory firm for 401(k) plans
(http://bit.ly/1lEeahk). The Social Security Administration has a
free downloadable tool (http://1.usa.gov/1OcZiWX) and Social
Security Solutions offers a solid solution for a small fee (http://bit.ly/1rSd3pP)
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Here is an example created using the Financial Engines tool.
Mike was born in December 1956, and has reason to think he will have
average life expectancy (living to about age 86). Ann was born in
October 1958, and can expect greater than average life span (around
91). He earns $140,000 per year; she earns $80,000. If they both
file at the full retirement age (66), he will receive an initial
benefit of $33,700 per year. She will get $27,800. Their expected
lifetime benefit is $1,473,500.
How could they boost those numbers? If Ann files for her earned
benefit at age 67, and Mike files at age 70, they will receive
$149,000 more in lifetime benefits.
In situations where one spouse’s income is much lower - less than
half of his or her mate's - Blankenship suggests that the lower
earner file at 62 (the earliest claiming age). At a later point,
when the higher-benefit spouse files, the lower earner could be
entitled to an increase from a spousal credit. The Social Security
Administration typically would bump up his or her payments
automatically when the spouse files, although Blankenship advises
contacting the SSA to make sure it happens.
Blankenship also advises couples to think about maximizing monthly
benefits for the spouse most likely to live longest. Even fairly
affluent households can run out of savings at advanced ages. For a
widow in her 90s in that situation, a maximized Social Security
benefit, adjusted annually for inflation, can be a real life-saver.
In Mike and Ann’s case, for example, her income as a widow will be
$10,900 higher.
“The key is to have a lifetime strategy as a couple,” Blankenship
said. “Don’t just say to yourself, 'This is my benefit - I want it
right now because I’ve worked long and hard for it.'"
(The opinions expressed here are those of the author, a columnist
for Reuters)
(Editing by Matthew Lewis)
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