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When should I file?

This is the $64,000 question. You are eligible to file for benefits as early as age 62. Waiting until your full retirement age (FRA), which is 66 for those born before 1960, results in a benefit that is about 25% higher than if you were to file at age 62. Waiting until age 70 results in an additional 8% increase per year beginning from your FRA.

While from a purely mathematical standpoint it might seem that waiting until age 70 to claim benefits is the best answer, there are other considerations.

One issue is the concept of “break-even.” There are a number of studies that calculate the break-even point between filing as early as age 62 and waiting until your FRA or until age 70. Most of these studies put the break-even anywhere from your late 70s to your late 80s.

While nobody can predict how long they will live, your general health and family longevity are factors to consider in your decision regarding when to claim.

A recent Fidelity article profiled a hypothetical couple with life expectancies of 78 and 76 years old. By claiming their benefits at age 66 as opposed to waiting until age 70 they would receive an additional $96,000 in lifetime benefits between them, assuming they lived to these ages. This would be a 20% increase over what they would have received by waiting until age 70 to claim.

Survivor benefits

One key consideration for a married couple is maximizing the survivor’s benefit for the spouse with the lower individual earnings record.

In this case, the spouse with the lower earnings record might consider claiming their benefit earlier than age 70, perhaps at their FRA. The spouse with the higher earnings record would wait until age 70, or as long as possible, before claiming benefits.

The reason for this is if the spouse with the higher benefit level dies first, then the surviving spouse has some options. They are eligible to take the higher level, whether their own benefit or the survivor’s benefit.

The same Fidelity article mentioned in the prior section profiled another couple where the husband’s benefit at their FRA was double that of his wife’s. By waiting until age 70 to file for his benefit, this increases the potential lifetime benefits for his wife by 27% if she lives to age 94, as she expects based upon her family history. In this example, even if she dies at 88, this would result in an increase of 12% in her lifetime benefits. These increases are the result of the higher benefit available for the husband’s waiting until age 70 to file, and come from both the benefits he received during his life and any survivor benefit if he dies first.

Widows and widowers are eligible for a survivor’s benefit beginning at age 60, at which time they would receive 71.5% of their deceased spouse’s benefit. This goes up in increments to 99% for those who have not reached their FRA. Once the surviving spouse has attained their FRA they are eligible to collect 100% of their deceased spouse’s benefit.

In order for a divorced spouse to be eligible for a survivor’s benefit, the surviving spouse must not have remarried until age 60 or later.

Restricted applications

For younger workers, the use of a restricted application to claim a spousal benefit has largely gone by the wayside due to changes in the rules enacted by Congress in late 2015.

The rules did grandfather-in those born before January 1, 1954. These people are still eligible to put in a claim for spousal benefits based upon their spouse’s earnings record using a restricted application. This means the claim is restricted to the spousal benefit.

A couple of things to know: First, you must have reached your FRA to do this. Second, in order to claim the spousal benefit in this fashion, your spouse must be getting their Social Security benefit already. If they decide to suspend their benefit down the road, your spousal benefit would cease under the new rules.

How might this be beneficial? Under the scenario discussed in the prior section, the spouse with the lower earnings record might claim their benefit before age 70. The other spouse, assuming they have reached their FRA and were born before January 1, 1954, could file a restricted application for the spousal benefit for the spouse that is drawing a benefit.

The gross benefit amount would be one-half of the other spouse’s benefit. The restricted application then allows that spouse’s own benefit to continue growing until they reach age 70. They would then, as the spouse with the higher earnings level, claim their own higher benefit.

For the four years this higher-earning spouse is getting the spouse’s benefit, this brings in some extra money while allowing their benefit to continue to grow at 8% annually until age 70. The spousal benefit could, for example, cover their Medicare costs, with potentially a bit extra.

Most importantly, the higher-earning spouse’s benefit continues to grow, and will provide a larger survivor’s benefit if needed.

Summary

Social Security is a retirement-planning element for most of us. For married couples, when to claim is a critical issue that requires planning and analysis. The decision can have lasting consequences for these couples over the course of their retirement.

Roger Wohlner Freelance Contributor

Roger Wohlner is an experienced financial advisor, finance blogger and freelance writer based in Arlington Heights, Ill. His expertise includes providing financial planning and investment advice to individual clients, 401(k) plan sponsors, foundations and endowments.

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