Born Before 1954? Consider the “Spousal Save” to Maximize Your Social Security Benefits

As Capital Investment Advisor’s resident Social Security specialist, I spend a fair amount of time helping people with their benefits filing strategy. Many times, in that process, I discover that would-be retirees aren’t aware of an important option for maximizing their monthly Social Security benefit check. I want to review and educate you on this less-than-well-known strategy, as it might make good financial sense for your retirement planning.

The Bipartisan Budget Act, passed in November 2015, phased out some Social Security filing strategies. Most notably, it did away with certain “unintended loopholes,” as legislators called them.

On the chopping block were the “file and suspend” and “retroactive lump sum” options. Using the “file and suspend” strategy, a spouse could elect to begin taking their spousal benefit, while the other spouse could wait to begin taking their regular benefit. And, under the previous “retroactive lump sum” strategy, a person could forego their benefits until age 70, and then elect to receive the foregone money in one lump sum check.

What many people don’t realize is that baked into this same piece of legislation is a grandfather clause which offers flexibility to anyone born before January 2, 1954. I have dubbed this overlooked strategy as, “62? Spouse Saves You!” Or more simply, “The Spousal Save.”

Here’s how it works.

If you were born before January 2, 1954 – meaning you turned 62 before January 2, 2016 – you can still file what is called a “restricted application.” Using this approach, you can collect your spousal benefit while delaying your own retirement benefit. This method means that, at the same time you are receiving spousal benefits, you’re earning your delayed retirement credits between ages 66 and 70. And these can equate to an additional 8% per year in benefits.

Now before you run to your local Social Security branch office, there are two conditions of which you should be aware:

  1. You must be Full Retirement Age “FRA” (66) or older; and
  2. Your spouse must have filed for their lifetime benefit.

For example, say John is 66 and Jane is 63. John’s FRA benefit at 66 is $2,200 per month, and Jane’s FRA benefit is $1,800 per month. If John and Jane both file, they will get a total of $3,640 per month forever, plus small cost of living adjustments (COLAs). Here’s the math:

  • John’s lifetime benefit = $2,200
  • Jane’s lifetime benefit = $1,440 (reduced by 20% because she filed three years before her Full Retirement Age)

That might work for John and Jane, but John and Jane could consider using The Spousal Save:

  • Jane files for her reduced lifetime benefit = $1,440
  • John files a restricted application (50% of Jane’s FRA) = $900
  • Their total benefit = $2,340

Yes, that’s substantially less than $3,640, but it’s not forever folks. Here’s what happens next:

  • John’s benefit is increasing behind the scenes by 8% per year.
  • So, when John reaches age 70, his lifetime benefit will be $2,993.
  • Jane will still receive her $1,440.
  • Now, their combined lifetime income is $4,433 per month plus COLAs for the rest of their lives.

You may ask, “What if I don’t live that long? There isn’t a history of longevity in my family.” Great point. In addition to thinking about what you could receive, you have to consider what you are not taking.

In this case, John is foregoing $1,300 per month for four years (which totals $62,400) so that he can earn an additional $793 per month in lifetime benefits. Under this example, John would have to live until age 77 to recoup what he didn’t take.

But what if John lives until 90? John and Jane just got an additional $123,708 in total lifetime benefits by executing the spousal save!

Of course, everyone’s filing strategy has to make sense for them and their unique circumstances.

Speaking of circumstances, let’s talk about how the provision works if you and your (former) spouse are divorced. Good news! You can still use The Spousal Save, just with a few more conditions:

  1. You are unmarried;
  2. You must be Full Retirement Age (66) or older;
  3. You must have been married for ten years; and
  4. You must have been divorced more than two years.

Before you declare that your ex didn’t do anything for you, understand you can potentially collect a spousal benefit and let your own lifetime benefit grow. Thanks, ex!

One final reason to consider The Spousal Save is for the survivor benefit.

Let’s say John was to take his lifetime benefit at age 66. Jane’s survivor benefit is $2,200 per month (not including COLAs). So, Jane would step up from $1,440 to $2,200 per month after John leaves this planet. But, if they execute the spousal save, provided John is considerate enough to go after reaching age 70, Jane steps up to $2,933. John will likely have more peace of mind knowing, if something were to happen to him, he has maximized Jane’s survivor benefit to the greatest extent possible. The same logic applies to the divorced survivor benefit. If Jane is unmarried, she will still step up to John’s full benefit provided she was married to John for ten years or more. If Jane re-marries after age 60 (age 50 if disabled), the remarriage will not affect her eligibility for survivors benefits.

I have helped several clients with this strategy. The unfortunate news is that some who have gone to a Social Security branch office to employ this approach have been initially denied. I’ve gotten phone calls while clients are sitting in the Social Security office, and they tell me, “I can’t do this.” The folks at these branch offices aren’t being difficult just for the heck of it. They just aren’t well-informed.

In these cases, I simply send my clients this link straight from the Social Security Administration’s website and direct them to Question 4.

The question says, “Can I restrict my application for benefits and apply only for spouse’s benefits and delay filing for my own retirement benefit in order to earn delayed retirement credits?”

And then there’s the answer below it, plain as day and in exact agreement with everything we’ve walked through above.

If you go a branch office and get initial pushback, you can refer the staffer to this link or request that your case be reviewed by the office’s technical expert. Sometimes these folks are more informed about the various ins-and-outs of Social Security regulations and policies.

No matter whether you think The Spousal Save could save – or earn – you some extra money, my last piece of advice is to consider working with a financial professional. Not only are we here to help you make these tough, number-heavy decisions, we are also able to help you navigate your way through the benefits application process.

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