YOUR MONEY: A way to boost Social SecurityUpon reaching full retirement age — now 66 — a married individual is able to pick and choose some benefits. Married workers are entitled to a retired worker benefit based on their own earnings. Or they are entitled to a spousal benefit equal to one half of their spouse's benefit claimed at the full retirement age.
By: Susan Tompor, Detroit Free Press
As wanna-be retirees dig through the rubble of their 401(k)s and the financial crisis, they're hearing about some quirky ways for claiming Social Security benefits.
One odd idea for two-paycheck couples in their 60s: Claim now, and then claim later to get more money each month.
Yeah, it sounds weird. It's so complex that even some economists who are good at math aren't sure about how it could work. It's definitely not going to work for everyone.
But some couples can make this work by understanding how Social Security rules work.
Many older workers are retiring earlier than they expected as auto companies, suppliers, car dealerships and others downsize on the quick. Their retirement savings — including the equity in their homes — is down. So some families are considering different options for getting the most out of their retirement dollars, including how to maximize their Social Security payouts.
Here's the deal as outlined by the Center for Retirement Research at Boston College: Upon reaching full retirement age — now 66 — a married individual is able to pick and choose some benefits. Married workers are entitled to a retired worker benefit based on their own earnings. Or they are entitled to a spousal benefit equal to one half of their spouse's benefit claimed at the full retirement age.
HOW IT WORKS
For the "claim now; claim more later" strategy to work, the higher-earning spouse must be at full retirement age, or 66, and the lower-earning spouse must start collecting Social Security benefits, too. Each spouse also must have an earnings history with Social Security for this strategy to work.
So you can stop reading here if you're age 66, and you married a trophy husband or wife who is now 56. You can't do this deal now if one spouse is younger than 62.
Keep reading, though, if both of you are in your 60s.
If you're 66 now, you can choose if you want to claim your own Social Security retirement benefit or your spouse's benefits. And oddly, married individuals who claim a spousal benefit at 66 are able to switch Social Security benefits and collect their own monthly retired worker benefit later.
Alex Golub-Sass, a research associate for the Center for Retirement Research at Boston College, said the approach would enable a worker to begin claiming one type of benefit while still building up delayed retirement credits, which will result in a higher monthly Social Security check later.
By delaying, the spouse who earned more during his or her working years would see his or her Social Security benefits increase by 8 percent a year from the benefit at age 66. The 8 percent figure applies for those who are 66 now and delay taking their own benefits.
This increase in benefits for each year of delay would kick in when the recipient switched from the spousal benefit to his or her own worker benefit.
The idea would be to delay those retirement benefits to age 70, if possible. It would be a way to maximize monthly benefits in the future.
"The higher earner is delaying longer," said Golub-Sass.
IT'S A GAMBLE
Say each spouse is 66 years old and each is entitled to retirement benefits of $1,400 a month. He must take a buyout and retire, but she can keep working. She can apply for spousal benefits based on his work record — worth $700 a month in this case — and delay claiming benefits based on her own work history until she reaches age 70. At that point, her check would be nearly $1,850 a month.
Avram Sacks, Social Security analyst for CCH, a part of Wolters Kluwer Law & Business in Riverwoods, Ill., said when people review this strategy they must consider the break-even point—as well as their own health and how many years they might live past age 70.
"If you're in reasonably good health, you might think it's a good reason to gamble," Sacks said.
What if you're 63 and your spouse is 63 now, too?
This deal won't work.
The strategy cannot be attempted before one spouse is age 66. That's because if you collect benefits before the full retirement age, the Social Security administration will apply the benefits that would be the highest at that point — and those benefits would not be allowed to build in future years.
"So you can't pick," said Golub-Sass. "And picking is what makes this worthwhile."
LEARNING MORE ABOUT SOCIAL SECURITY
See the Social Security Web site at www.ssa.gov. You can request a Social Security statement to see an estimate of benefits.
Or go to www.socialsecurity.gov/estimator to use an estimator for Social Security benefits if you're not age 62 or older and receiving benefits on another Social Security record. Other restrictions apply, too. The phone number for Social Security is 800-772-1213.
Pay attention to your Social Security statements, which are mailed about 3 months before your month of birth.
The earliest age anyone can receive Social Security retirement benefits is 62, but you'd receive a larger monthly check if you wait longer. You should consider your health and other issues if you decide to wait. If you receive benefits at 62, the benefits are reduced compared with what you'd receive at your full retirement age.
The full retirement benefits age is 66 — if you were born in 1943 through 1954. That age gradually increases for people born after that until it tops out at age 67 for people born in 1960 or later.
For retirement information, see www.choosetosave.org/asec for savings tips and calculators from the American Savings Education Council.
(Susan Tompor is the personal finance columnist for the Detroit Free Press. She can be reached at firstname.lastname@example.org.)