by David Cechanowicz, JD, MSFS, AIF®, AEP, EA – Senior Financial Planner
REDW Wealth LLC
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The universe of potential Social Security retirement benefit claimants is divided into two groups that are separated by one date: January 2, 1954. All individuals who were born on or after that date are limited to one Social Security benefit claim when it comes time to file for benefits.
Married (or formerly married) workers born prior to that date have the potential ability to claim one Social Security benefit while allowing the second, the larger benefit, to grow by up to 32% before claiming it. The first benefit in question is called the spousal benefit and it has a special application for households with claimants born prior to January 2, 1954.
Conditions for Claiming the Spousal Benefit
There are a couple of conditions that have to be met to exercise this strategy, the first of which is that the person claiming the spousal benefit prior to their own retirement benefit must have reached their full retirement age of 66. The second requirement is that the spousal benefit can only be claimed if the other party is claiming their own retirement benefit. When these conditions come together, a spousal benefit can be claimed by one individual prior to claiming their retirement benefit.
What’s at stake here? First of all, the spousal benefit when claimed at full retirement age is 50% of the PIA, or Primary Insurance Amount, of the person who is claiming their retirement benefit. As an example, let’s assume that Paul was the first in the family to claim a social security benefit, and he made the claim at his full retirement age of 66. His retirement benefit is $2,000 per month. Today, when his spouse, Brenda, turns 66, she is eligible to collect $1,000 per month, regardless of whether she continues to work.
Additionally, if Brenda had her own PIA of $2,600 a month, she will continue to earn delayed retirement credits of 8% per year (in addition to any Cost of Living Adjustment, or COLA, benefits earned) for each year she defers her own retirement benefit. Therefore, at a minimum, Brenda will be eligible for a retirement benefit of $3,432 per month when she switches to her own claim when she turns 70. Since she is most probably going to be the ultimate survivor of the couple, she will keep the larger retirement benefit for the rest of her life.
The First Year of Eligibility: 2019
Although several articles in the popular press have stated that 2019 is the last year to exercise this strategy, they are wrong. Rather, this is the first year of eligibility to exercise this strategy for those who turn 66. Other factors may prevent someone who reaches full retirement age from claiming the benefit, however. For example, suppose the second spouse is only 61 years old. Since they are not eligible to claim a retirement benefit until they turn 62, the individual wanting to claim a spousal benefit will have to wait another year before filing his or her claim.
As an example, Jane, who turns 66 in July 2019, is married to Phil, who will not turn 62 until June 2020. If Phil has a retirement benefit of $1,600 a month at his full retirement age, by claiming at age 62 he will have to take a reduced retirement benefit of $1,186 per month. However, Jane would still qualify for a 50% benefit of Phil’s Primary Insurance Amount of $1,600 per month. Therefore, Jane would be able to collect $800 a month while waiting for her own benefit to accumulate. If her retirement benefit at her full retirement age was $2,400 per month, then it would grow to $3,168 at age 70.
What is really important to remember is that, if you or someone you know is turning 66 in 2019, then they should ask the question, is there something I might miss out on regarding claiming my Social Security benefits in retirement?
If a retiree is one of the people who qualifies, it makes sense to consult with a professional about the claiming options available, as the claimant would be able to receive some additional income while waiting for their own benefit to “mature.â€
Note, the Spousal Benefit is not limited just to those who are turning 66 in 2019. Since the benefit can last for four years, there are some individuals in the audience who are still eligible for one, two, or three years of benefits, provided they have not yet filed for their own Social Security and have a spouse who is already collecting, or may start collecting benefits this year or next year.
The Rules, Summarized
Again, what are the rules and who can claim this benefit?
- Married individuals where one of the spouses turns 66 in 2019 (or has already turned 66) who have not yet filed for their own retirement benefits.
- Divorced individuals who have not remarried and turn 66 in 2019. This benefit is called the ex-spouse benefit and it, too, has several requirements:
- The marriage must have lasted at least 10 years.
- The divorce must have happened at least two years prior to the claim.
- You must not have claimed your own retirement benefit that is greater than your spousal benefit.
- If you claimed your own retirement benefit that is less than half of your spouse’s retirement benefit at age 66, you may be eligible for additional money.
- The ex-spouse must be entitled to a Social Security retirement benefit (they are not required to be claiming benefits, but must only be at least 62 years old).
- If an ex-spouse does not turn 62 until 2020, that means that the spousal claiming period is reduced by one year for those who plan on switching benefits. It is possible that some 69-year-olds who have not claimed their own benefit still have the ability to claim an ex-spouse benefit for at least one year.
- Widows and widowers may also be eligible for benefits by claiming on the life of a deceased spouse and then switching to their own benefit if it will be higher. In March 2018 the Inspector General of the United States found that Social Security systematically underpays widows and widowers. For this reason it is especially important to select professional help in dealing with claiming Social Security benefits.
Let REDW Wealth Help!
If you turn age 66 in 2019 or know someone who is turning 66 this year, please reach out to them and let them know that expert help is available to them. We at REDW Wealth are happy to answer questions about Social Security claiming options. The options are confusing at best, but clarity can be found just around the corner. Give us a call at (505) 998-3200
Copyright 2019 REDW Wealth LLC. All Rights Reserved. This publication is intended for general informational purposes only and should not be construed as investment, financial, tax, or legal advice.
