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3 Misunderstood Aspects of Social Security Benefits

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This post was written by Jim Blankenship, CFP®, EA, a fee-only financial advisor and owner of the excellent finance blog Getting Your Financial Ducks in a Row, where he covers IRAs, Social Security, Taxation, and most other aspects of financial planning.  I’ve known Jim for a long time and consider him an expert on Social Security and many other topics.  His blog is must-reading for me and should be for you as well.

The Social Security benefit landscape is a complicated and confusing place to navigate. It’s tough enough to figure out what is the best time to file for your own benefits, let alone trying to coordinate benefits for yourself and your spouse.  There are many confusing provisions of Social Security; below is a brief explanation of 3 misunderstood aspects of Social Security benefits.

Spousal benefits

When one spouse is eligible for retirement benefits, the other spouse is also eligible for a benefit based upon the first spouse’s record.  The largest Spousal Benefit is 50% of the other spouse’s Primary Insurance Amount (PIA).  The PIA is equal to that individual’s benefit available at Full Retirement Age (FRA). Full Retirement Age is 66 for folks born between 1946 and 1954, increasing to age 67 for those born in 1960 or after.

An individual may receive the Spousal Benefit as early as age 62, at a reduced rate. The other spouse must have filed for his or her own benefit – and could have suspended benefits (see File and Suspend below).

The confusing parts. The following areas always seem to trip up folks as they plan for the Spousal Benefit.

  1.  Only one of the spouses can receive Spousal Benefits at a time. The other spouse must have filed or filed and suspended for his or her own benefit.
  2.  At or after FRA, the individual can receive Spousal Benefits alone, separate from the retirement benefit on his or her own record (see Restricted Application below).  This allows the spouse receiving Spousal Benefits to delay receiving his or her own benefit, increasing that retirement benefit (via Delayed Retirement Credits).
  3.  Before FRA, filing for Spousal Benefits will result in a reduced Spousal Benefit. Plus, filing for Spousal Benefits before FRA will result in deemed filing for the individual’s own retirement benefit, with both benefits reduced. 

File and Suspend

When the individual who is eligible for a retirement Social Security benefit reaches Full Retirement Age (FRA), the individual may voluntarily suspend receiving benefits.  By suspending benefits, the individual has accomplished two things:

  1.  The individual has established a filing date for benefits. This means that the Social Security Administration has a record that the individual has filed for benefits. Since that record exists, other benefits become available based upon the individual’s Social Security record. Also, at some point in the future, the individual could change his or her mind and collect retroactive benefits from the established filing date to the present, continuing to receive monthly benefits as if the filing was never suspended.
  2. The individual will not receive benefits while the suspension is in place. If the individual does not collect retroactive benefits at a later date (see #1 above), Delayed Retirement Credits will add to his or her future benefit. This amounts to an 8% increase in benefits per year of delay.

Restricted Application 

As mentioned above, when an individual reaches Full Retirement Age (FRA) and is eligible for a Spousal Benefit, the individual may choose to file a Restricted Application for Spousal Benefits only.  This type of application provides for the individual to receive *only* the Spousal Benefit, based upon his or her spouse’s record. By doing so, he or she can delay filing for his or her own benefit to a later date.  With the delay, the individual’s own benefit will gain Delayed Retirement Credits; maximizing the benefit by age 70.

Jim Blankenship, CFP®, EA, is a fee-only financial advisor.  Check out his blog Getting Your Financial Ducks in a Row, follow him on Google+ and Facebook as well.  

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Comments

  1. If an individual decides to delay filing for social security until age 70, and his spouse will delay until FRA, are there precautions to be aware of? Reference the “File and Suspend,” is establishing a record with the Social Security Administration that important?

    • Noel –

      Establishing a filing date with SSA is important in that without that recorded filing date, other benefits cannot be paid on that individual’s record. So, in order for a wife to file for spousal benefits, the husband must have established a filing date. Establishing a filing date can be done while receiving benefits, or while benefits are suspended (which is file and suspend).

      Delaying as suggested in your comment carries virtually no downside, and much potential upside benefits.

      Hope this helps –

      jb

      • Jim,

        Thank you for your prompt reply to my question. More specifically, I turn 70 years old in November 2016. My wife turns 66 years old in July 2017. My plan was to delay filing for social security benefits until age 70. My wife plans to file for spousal benefits when she reaches age 66 years old her FRA. My wife was primarily a housewife with a limited work history outside the home. The spousal benefit based on my work record far exceeds her personal benefit. Based on this information, what is the benefit of “file and suspend,” or just wait to file? If the social security guide lines change and I have not filed will I be penalized?

        • Noel –

          Since you are already going to have filed by the time your wife reaches FRA, there is no need for you to file and suspend. By virtue of the fact that you will file 8 months prior to her reaching FRA, she will already be eligible for the Spousal Benefit.

          Hope this helps –

          jb

  2. At FRA, I filed for SS benefit. One year later, I suspended benefit for 18 months. Since restarting my benefit, I’ve been “working” with SSA, for almost four months, to receive an increase in benefit due to my 18 month suspension.

    People at my local SSA office agree that I’m supposed to receive an increase, and they have notified the Great Lakes Region HQ to correct the situation, but so far nothing. And it has been like pulling hen’s teeth to obtain info from SSA about the status of my case.

    I caution anybody who is considering a voluntary suspension to be aware that SSA doesn’t appear to be up-to-speed on adjusting benefit upon restart of benefit — at least, that’s my experience.

  3. Wayne Johnston says:

    Noel;
    I plan to retire in December-I’ll be 67 in October and my wife will be 66 in August of 2016. Neither of us have filed for Social Security benefits.
    I plan to file and suspend prior to her 66th birthday in 2016, and have her claim for the spousal benefits when she turns 66 in 2016.
    How should we decide to claim on her employment record or mine ?
    When I claim for my benefits when I reach 70, will she continue to receive her spousal benefits till she reaches 70 ?

    Thank you

    • Wayne,

      Your question requires some review. Depending upon the amount of benefit that is available to your wife based on her own record compared to the spousal benefit, it could make sense for her to file solely for the spousal benefit at her age 66, and then later at age 70 apply for the benefit based on her record. If the benefit amount from the spousal benefit is much larger than the benefit based on her own record, then it might not matter.

      For example – let’s say her own benefit might be $1,000, and the spousal benefit could be $1,100. At her age 66, your wife could file for the spousal benefit alone (via what’s called a “restricted application”). She would receive this benefit amount for the coming four years to age 70. At that point, her own benefit would have increased by 32% due to delay credits, so now she can file for that benefit and begin receiving $1,320 per month (plus Cost of Living Adjustments).

      On the other hand, if her own benefit was only going to be, say $500, then she would only file for the spousal benefit at age 66. Her own benefit would never grow to an amount greater than the spousal benefit ($1,100 from our example).

      On the third hand, if her own benefit is $1,000 and the spousal benefit is only $500, then you need to decide if you need the cash flow now or later. She could receive the $500 per month from age 66 to 70 and then take the augmented amount; or she could just file for her own benefit of $1,000 at age 66 and be done with it – no future increases.

      Either way, in answer to your last question – regardless of whether you’ve filed for your own benefit, your wife can continue to receive the spousal benefit.

      Hope this helps –

      jb

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