Last fall, Congress made waves in the retirement planning world, when they brought an end to a long-standing loophole that allowed a popular Social Security strategy called “file and suspend”. The strategy, commonly used by couples to maximize their benefits, has now expired. Without it, some of you might be wondering whether there are other ways to maximize Social Security benefits.
Actually, yes, there is another commonly-used strategy that helps some couples to increase their overall Social Security benefit amounts. You can do this by filing a “restricted application”, and it’s a strategy that all couples should examine as they plan for retirement.
Here’s how it works:
John and Tina, a married couple, are ages 66 and 62, respectively. Once Tina turns 62, she can file an early application for her Social Security benefits (although she will receive smaller payments than if she waited until her full retirement age). Meanwhile, John has reached full retirement age, but he doesn’t file for his benefit yet. Instead, he files a restricted application, and claims spousal benefits on Tina’s work record.
Each month, Tina will receive her own benefit, and John will receive a spousal benefits check for roughly half of that amount. In the meantime, John’s benefit amount, which is based on his own work record, continues to grow by about 8 percent as he continues working. When he turns 70, John claims his own benefits instead of the spousal benefit he has been receiving. Tina then switches to her spousal benefit, based on John’s work record, because his benefit amount is much larger.
Clearly, this strategy works best if John and Tina are able to live on smaller Social Security checks for about four years. The reward comes later, when they receive much larger checks each month. This strategy is especially lucrative if John continues to work until age 70, or if the couple has establish another form of steady retirement income.
Filing a restricted application isn’t right for everyone, and you should carefully analyze your situation before making such a serious decision. As with all retirement planning decisions, we’re here to help. Come in to talk with us, and we can analyze your retirement plans and help you decide upon the best Social Security strategy for you and your spouse.
