Savvy Social Security Planning for Couples

Savvy Social Security Planning for Couples
[Advisor] [Firm] [Disclosures] Welcome everyone. I'm glad you're here. Today we're going to talk about Savvy Social Security Planning for Couples. This is a very important part of financial planning. Although Social Security benefits are paid to individuals, the rules for spousal and survivor benefits mean that husbands and wives need to coordinate their benefits and make their claiming decisions as a couple. You'll see what I mean as we go along.

1935: Social Security Act signed into law
Social Security was first signed into law in It was designed to give retirees who had worked all their lives a basic level of income during retirement.

1939: Benefits for spouse, survivors, and minor children added
In 1939 benefits for spouses, survivors, and minor children were added. Remember, back in those days most married women didn't work. So the spousal benefit was added to give wives 50% of their husband's benefit even if they had never worked outside the home. If the worker dies at a young age, benefits are paid to children until they are 18 and to the mother who is caring for the children. The mother's benefits stop when the child turns 16, and then resume again when she turns full retirement age. By the way, the Social Security designers probably didn't ever think retirees would have young children, but the same rules apply. If you are old enough to collect Social Security retirement benefits and you have minor children, your kids can receive benefits too. But you have to be careful here. In order for the children to get benefits, you have to file for your own benefit. It generally doesn't make sense to file for a permanently reduced benefit at 62 even if it would give your kids an extra four years worth of children's benefits. But I'm getting ahead of myself here. Come see me if this situation applies to you.

Social Security Offers Income You Can't Outlive
If your monthly benefit is $2,400 today and you live: 10 more years you'll receive a total of $365,095 in lifetime benefits 20 more years $808,347 30 more years $1,392,575 The best part about Social Security is that it is one of the few sources of retirement income that you can't outlive. Ida Mae Fuller, the first recipient of a monthly Social Security check, died at the age of 100. She received Social Security right up until the month she died. Let's look at how much Social Security may be worth to you depending on how long you live. If your benefit is $2,400 per month and if annual cost-of-living adjustments average 2.8%, you'll receive $365,095 in lifetime benefits if you live 10 more years. If you live 30 more years you'll receive nearly $1.4 million. This is why we say that the very best way to maximize your Social Security benefits is to live a really, really long time. Assumes 2.8% annual cost-of-living adjustments

Social Security Offers Annual Inflation Adjustments
If your monthly benefit is $2,400 today and annual cost-of-living adjustments are 2.8%: In 10 years Your monthly benefit will be $3,164 In 20 years $4,169 In 30 years $5,495 Social Security is also one of the few sources of retirement income that keeps up with inflation. The Social Security trustees project that inflation will average 2.8% over their 75-year time horizon. If this is the case, and if your benefit starts out at $2,400 per month, in 10 years your monthly income will be $3,164. In 20 years it'll be $4,169. And in 30 years it will be $5,495. These numbers may seem high to you now, but they won't seem high when a loaf of bread costs $15. And please don't let these high monthly amounts lead you to think that you'll be able to live on Social Security alone. Social Security was never intended to meet all of a retiree's income needs in retirement. You will need other sources of income. Assumes 2.8% annual cost-of-living adjustments

Definitions Before we get into the meaty part of Social Security planning, we need to define a few terms.

Full Retirement Age (FRA) The age at which you can start full, unreduced benefits
Year of Birth Full Retirement Age and 2 months and 4 months and 6 months and 8 months and 10 months 1960 and later 67 Full retirement age is a Social Security term that describes the age at which you can start receiving full, unreduced Social Security benefits. Full retirement age used to be 65 for everyone, but in 1983 Congress raised the full retirement age, which is gradually being phased in. If you were born between 1943 and 1954, your full retirement age is 66. If you were born in 1960 or later your full retirement age is 67.

Primary Insurance Amount (PIA)
The amount of your benefit if you start it at your full retirement age The next important concept to understand is your primary insurance amount. Social Security benefits are based on your work history. The formula is rather complicated, but the important thing to know is that it's based on your highest 35 years of earnings. The more you earned each year, up to the annual Social Security maximum, the higher your benefit will be. And Social Security continues to update your earnings record, even if you work into your 60s and 70s, and even after you've started receiving your Social Security benefit. So if you are wondering how you might be able to increase your Social Security benefit, that's one way: keep working. To find your primary insurance amount, just look at your annual Social Security statement. It's your benefit amount at your full retirement age. In this example the benefit amount at full retirement age is $2,029 per month. This is the primary insurance amount, or PIA.

What if You Apply Before FRA?
You will receive a percentage of your PIA Apply at age Benefit will be % of PIA if FRA = 66 (born in ) Permanent benefit if PIA = $2,400 62 75.0% $1,800 63 80.0% $1,920 64 86.7% $2,081 65 93.3% $2,239 66 100% $2,400 Now, your PIA is not your actual benefit unless you apply for Social Security at your exact full retirement age, either 66 or 67. If you apply for Social Security before full retirement age, you will receive a percentage of your PIA. If your full retirement age is 66 and you claim at 62, you'll receive 75% of your PIA. So if your PIA is $2,400, your permanent benefit will be $1,800. The difference between $1,800 and $2,400 may not seem like very much now, but over time claiming early can make a huge difference in the amount of total benefits you receive as well as the amount of income you receive each month.

What if You Apply Before FRA?
You will receive a percentage of your PIA Apply at age Benefit will be % of PIA if FRA = 67 (born in 1960 or later) Permanent benefit if PIA = $2,400 62 70.0% $1,680 63 75.0% $1,800 64 80.0% $1,920 65 86.7% $2,080 66 93.3% $2,239 67 100% $2,400 Here's the same table if your full retirement age is 67. That is, if you were born in 1960 or later. In this case you will see a bigger reduction for claiming early. If your PIA is $2,400 and you apply at 62, your benefit will be just 70% of $2,400, or $1,680.

Reasons not to file before FRA
Your benefit will be permanently reduced. Now, it doesn't matter to the Social Security system whether you file for your benefit at 62 or 66. To them it's all the same. The formula has been calculated by actuaries based on average life expectancies. If you live to average life expectancy, which is about 82 for men, 84 for women, there's no difference to the Social Security system whether you file at 62 and receive more checks in a lower amount or file at 66 and receive fewer checks in a higher amount. But here's the thing: No one individual meets this statistical average. Half of you will live longer than the average life expectancy. The biggest risk for baby boomers is outliving their income. So when doing Social Security planning the prudent thing to do is to plan for a very long life – that is, instead of asking, "What if I die tomorrow?" you should be asking, "What if I live a very long time?" And then follow the strategy that will give you the most income in case you do.

Your benefit will be permanently reduced. If you work, $1 in benefits will be withheld for every $2 you earn over $15,480. Second, if you file for Social Security before full retirement age and you continue to work, some or all of your benefits will be withheld. One dollar in benefits will be withheld for every $2 that you earn over the earnings test amount, which is $15,480 in Now, this is not a reason not to work, because if your benefits are withheld, the actuarial reduction for those months will be made up when your benefit is recomputed at full retirement age. The old way of thinking was to apply for Social Security at 62 and try not to earn too much so you could keep all of your Social Security. This is not conducive to long-term financial security. The new way of thinking is to keep working as long as possible and apply for Social Security as late as possible because you're probably going to need that extra income later in life.

Your benefit will be permanently reduced. If you work, $1 in benefits will be withheld for every $2 you earn over $15,480. You will not be able to take advantage of savvy spousal strategies. Another reason not to file before full retirement age is that you won't be able to take advantage of some of the spousal strategies that we're going to be talking about in a few minutes. We've encountered many people who filed for Social Security at 62 who then find out about savvy strategies for spousal benefits. If they've already filed for early benefits they can't take advantage of them.

Your benefit will be permanently reduced. If you work, $1 in benefits will be withheld for every $2 you earn over $15,480. You will not be able to take advantage of savvy spousal strategies. Your surviving spouse’s survivor benefit will be lower. And finally, if you are the high-earning spouse of the family, filing for early reduced benefits will lower your spouse's survivor benefit if you die first. This is one of the most important reasons not to file for Social Security before full retirement age. We'll be talking more about this later.

What if You Apply After FRA?
Your benefit will earn 8% annual delayed credits to age 70 Apply at age Benefit will be % of PIA if FRA = 66 (born in ) Permanent benefit if PIA = $2,400 66 100% $2,400 67 108% $2,592 68 116% $2,784 69 124% $2,976 70 132% $3,168 OK. So those are the consequences of filing for benefits before you reach full retirement age. What if you apply for Social Security after full retirement age? Your benefit will earn delayed credits of 8% per year up to age 70. So if your PIA is $2,400 and you file for Social Security at age 70, your monthly benefit will be 132% of $2,400, or $3,168. That's without cost-of-living adjustments. By the time you actually get to 70 your benefit would be even higher than this because of COLAs.

What if You Apply After FRA?
Your benefit will earn 8% annual delayed credits to age 70 Apply at age Benefit will be % of PIA if FRA = 67 (born in 1960 or later) Permanent benefit if PIA = $2,400 67 100% $2,400 68 108% $2,592 69 116% $2,784 70 124% $2,976 And here's the same table if your full retirement age is 67. You still get the 8% annual delayed credits, but it's for three years instead of four. So if your PIA is $2,400 and you apply for Social Security at age 70, your benefit will be $2,976, plus cost-of-living adjustments.

Impact of delaying benefits
PIA = $2,400 Starting benefit Cumulative benefits at 85(today’s dollars) Monthly income at 85* with 2.8% annual COLAs Cumulative benefits at 85 with 2.8% annual COLAs Claim Social Security at 62 $1,800 $518,400 $3,397 $726,257 Claim Social Security at 70 $3,168 $608,256 $5,979 $940,790 This table takes the starting amounts, at age 62 or 70, and carries them out so you can see the impact over a period of years. If your PIA is $2,400 and you start your benefit at 62, you will receive $1,800 a month. By age 85, you will have received a total of $518,400, not counting annual cost-of-living adjustments. This is just the $1,800 multiplied by 276 months. Conversely, if you apply at 70, your income will be $3,168 per month and by age 85 you will have received $608,256 in total benefits. That's $3,168 multiplied by 180 months. Now, cost-of-living adjustments are not a sure thing. But as long as there's inflation, your Social Security income should go up. So let's look at the monthly income if annual COLAs average 2.8%. By age 85 your monthly income will be up to $3,397 if you filed at 62 versus $5,979 if you delayed the start of benefits to age 70. Your cumulative benefits with COLAs would be $726,257 vs. $940,790. So you can see that the disparity widens when cost-of-living adjustments are applied. I know what you're thinking. What if I don't make it to 85? Well, if you die before age 85, and if you are the higher-earning spouse, your benefit will transfer over to your spouse. So it really doesn't matter how long you live. What matters is how long one of you lives. If at least one of you is alive at 85 – and odds are it will be the wife – it pays for the higher-earning spouse to delay benefits to age 70. In case of death the higher benefit is preserved. If you are the higher-earning spouse and your spouse dies before you, you will keep your higher benefit. If you are the higher-earning spouse and you die before your spouse, your higher benefit will transfer over to your spouse. * If primary wage earner dies before age 85, this approximate amount will transfer to surviving spouse

When To Apply for Social Security Key Points To Remember
If you apply early, your benefit starts lower and stays lower for life. The "when to apply" question is very complex and really requires a customized analysis. But here are a few points to remember. If you apply early, your benefit starts out at some fraction of your PIA -- and remains at that amount for the rest of your life. Your benefit amount is locked in at the time you apply, and only goes up with annual COLAs.

If you apply early, your benefit starts lower and stays lower for life. COLAs magnify the impact of early or delayed claiming. The longer you live, the more beneficial it is to delay benefits. COLAs magnify the impact of early or delayed retirement because the annual cost-of-living adjustment is applied to either the lower or higher amount. This causes the disparity to increase with each passing year.

If you apply early, your benefit starts lower and stays lower for life. COLAs magnify the impact of early or delayed claiming. The longer you live, the more beneficial it is to delay benefits. Decision impacts survivor benefits as well: Higher-earning spouse should delay the start of benefits to increase income for surviving spouse. The "when to apply" question impacts survivor benefits as well. The higher-earning spouse should delay the start of benefits to increase income for the surviving spouse. Remember, the higher benefit will be preserved regardless of which spouse dies first. Delaying benefits is like getting extra life insurance that you don't even have to pay for.

Spousal Benefits OK. With that background understood, let's talk about spousal benefits. These are not just for nonworking wives anymore. We've discovered some newer, more savvy ways to employ spousal benefits for married couples. By the way, the recent repeal of the defense of marriage act should open the door to spousal and survivor benefits for same-sex couples who were legally married in states that allow gay marriage. We are still awaiting a clarification of the rules on this.

Social Security Spousal Benefits
The spouse of a worker entitled to Social Security may claim a spousal benefit. In its simplest definition, spousal benefits may be paid to the spouse of a worker who is entitled to Social Security benefits.

The spouse of a worker entitled to Social Security may claim a spousal benefit. “Entitled” means the worker is eligible for Social Security and has filed for benefits. "Entitled" means the worker is eligible for Social Security and has filed for benefits. This is important. If your spouse is 62 but has not yet filed for his benefit, you cannot yet get a spousal benefit.

The spouse of a worker entitled to Social Security may claim a spousal benefit. “Entitled” means the worker is eligible for Social Security and has filed for benefits. Example: Jack and Jill are married; they are both 66 Jack has paid into Social Security all his life; his primary insurance amount (PIA) is $2,400 Jill has never worked Once Jack files for Social Security benefits, Jill may file for her spousal benefit Jill’s spousal benefit will be 50% of Jack’s PIA, or $1,200 Here's an example. Jack and Jill are married. They are both 66. Jack has paid into Social Security all his life, and his primary insurance amount is $2,400. Jill has never worked. Once Jack files for Social Security benefits, Jill may file for her spousal benefit. Jill's spousal benefit will be 50% of Jack's PIA, or $1,200.

If spouse applies before full retirement age, spousal benefit will be reduced
Age Spouse Applies for Spousal Benefit % of Worker’s PIA if born % of Worker’s PIA if born 1960 or later 62 35.0 32.5 63 37.5 64 41.7 65 45.8 66 50.0 67 68 69 Now, there are two things that can complicate this rather simplistic idea of spousal benefits being 50% of the worker's PIA. One is the age at which the spouse claims the spousal benefit. If she files before her full retirement age, she will receive a reduced spousal benefit. So if Jill files for her spousal benefit at 62, she'll receive 35% of Jack's PIA, not 50%. Or, if Jill was born in 1960 or later, which means her full retirement age is 67, she'll get 32.5% of Jack's PIA if she files at age 62. Note that after full retirement age the maximum spousal benefit is 50% of the worker's PIA. It does not go up if she files after her full retirement age. Also, if Jack is delaying his benefit and earning delayed credits, Jill's spousal benefit will still be 50% of his PIA, not 50% of his higher benefit.

Women in the workforce Here's the second thing that can complicate the spousal benefit. More women are working today. In 1950 only 30% of the labor force was made up of women. Today it's nearly 50%.

More women qualify for Social Security on their own work record
This means more women also qualify for Social Security on their own work record. In 1970, only 63% of women qualified for Social Security based on their own earnings. Today, 85% of women do. This means both spouses may be able to coordinate their earned benefits and their spousal benefits to get more than they otherwise would be able to. I'll show you some examples.

Rules for spousal benefits
Primary worker must have filed for his benefit But before we get into the examples, I want to review the rules for spousal benefits. First, the spouse on whose record the spousal benefit is being requested must have filed for his own benefit. If Jill wants to receive a spousal benefit off Jack's record, Jack must have filed for his own benefit. That's just a rule.

Primary worker must have filed for his benefit Spouse must be at least 62 for reduced benefit (35% of worker’s PIA) or 66 for full benefit (50% of worker’s PIA) The spouse applying for spousal benefits must be at least 62 for a reduced benefit, or 66 for a full benefit. So if Jill wants to receive a spousal benefit off Jack's record, Jack must have already filed for his benefit and Jill must be at least 62.

Primary worker must have filed for his benefit Spouse must be at least 62 for reduced benefit (35% of worker’s PIA) or 66 for full benefit (50% of worker’s PIA) Spousal benefit is based on worker’s PIA, not his actual benefit The spousal benefit is based on the worker's PIA, not his actual benefit. So even if Jack delays his benefit to age 70 in order to receive the 8% annual delayed credits, Jill's spousal benefit will still be based on Jack's PIA.

Primary worker must have filed for his benefit Spouse must be at least 62 for reduced benefit (35% of worker’s PIA) or 66 for full benefit (50% of worker’s PIA) Spousal benefit is based on worker’s PIA, not his actual benefit No delayed credits on spousal benefits after FRA Spousal benefits do not earn delayed credits after full retirement age. If Jill files for her spousal benefit at her age 70, she will get the same amount she would have gotten if she had applied at 66. Now, sometimes the wife has no choice, if she is older than the husband. Say Jill is 66 and Jack is 62. Jack doesn't want to take a permanently reduced benefit by applying at 62. This means Jill must wait until Jack is 66. By then she will be 70. That's the earliest she would be able to file for the spousal benefit. It will still be 50% of Jack's PIA.

Primary worker must have filed for his benefit Spouse must be at least 62 for reduced benefit (35% of worker’s PIA) or 66 for full benefit (50% of worker’s PIA) Spousal benefit is based on worker’s PIA, not his actual benefit No delayed credits on spousal benefits after FRA Marriage requirement is one year The marriage requirement is generally one year. There are some exceptions to this if the spouse is receiving spousal or survivor benefits at the time of the marriage.

What if spouse is also entitled to Social Security on own work record?
If spouse applies before FRA, she will receive her own reduced benefit first. OK. Now, what if the spouse is also entitled to Social Security on her own work record? If she applies before full retirement age, she will receive her own reduced benefit first. She can't say she just wants her spousal benefit now and save her own benefit for later. She can only do that if she applies at her full retirement age or later. I'll talk more about this in a minute. For now just understand that if Jill qualifies for Social Security on her own work record, and if she files for benefits before full retirement age, she will be paid her own reduced benefit first.

If spouse applies before FRA, she will receive her own reduced benefit first. If spousal benefit would be higher, she will be paid the additional amount. If the spousal benefit would be higher, she will be paid the additional amount, providing the husband has filed for his benefit.

If spouse applies before FRA, she will receive her own reduced benefit first. If spousal benefit would be higher, she will be paid the additional amount. Example: Jack and Jill are married. Jack is 66, Jill is 62. Jack’s PIA is $2,400. Jill’s PIA is $800. Jack files for benefits at 66. Jill files for benefits at 62. Jill will receive her own reduced benefit of $600 (75% of $800) + a spousal add-on of $280 for a total benefit of $880. Spousal add-on formula: [($2,400 x .5) - $800] x .70 = $280. This is about 37% of Jack’s PIA Here's an example. Jack and Jill are married. Jack is 66, Jill is 62. Jack's PIA is $2,400. Jill's PIA is $800. They file for benefits at the same time, Jack at 66, Jill at 62. Jill receives her own reduced benefit of $600, which is 75% of her $800 PIA. She will also receive a spousal add-on of $280 for a total benefit of $880. If you're interested in the spousal add-on formula, they take one-half of Jack's PIA and subtract Jill's PIA and multiply it by 70% for early claiming. It ends up being about 37% of Jack's PIA. Got it? The important thing to remember here is that she is not receiving EITHER her own benefit OR her spousal benefit. She is receiving a combination of benefits. This is important to know when we starting talking about savvy spousal strategies.

Senior Citizens’ Freedom to Work Act
Authorizes suspension of benefits at full retirement age OK. We've talked about a few historic events today. One was the signing of the Social Security Act. The second was the addition of spousal, survivor, and children's benefits. The third was the growth of women in the labor force. The last one is the Senior Citizens' Freedom to Work Act of This act had several provisions, but what's important to us today is that it authorized the suspension of Social Security benefits at full retirement age. You'll see in a minute why this is important.

Savvy Spousal Strategies
And now what you've all come here for Savvy Spousal Strategies.

“File and suspend” At FRA, higher-earning spouse applies for his benefit and asks that it be suspended. The first savvy spousal strategy is file and suspend. Why would a person want to do this? Well, as we discussed earlier, in order for a spouse to receive a spousal benefit, the other spouse must have filed for benefits. But often the high-earning spouse wants to delay his benefit to age 70 in order to maximize income to the couple while both are alive, and income to the surviving spouse after one spouse dies. So as soon as the high-earning spouse turns full retirement age, he files for his benefit and then immediately suspends it.

Lower-earning spouse files for spousal benefit.
“File and suspend” At FRA, higher-earning spouse applies for his benefit and asks that it be suspended. Lower-earning spouse files for spousal benefit. Once the high-earning spouse files for his benefit, the low-earning spouse can file for her spousal benefit. If he hadn't done this, she might have to wait several years before filing for her spousal benefit.

“File and suspend” At FRA, higher-earning spouse applies for his benefit and asks that it be suspended. Lower-earning spouse files for spousal benefit. Higher-earning spouse claims benefit at 70. When the high-earning spouse turns 70, his benefit will automatically be resumed and will include all the delayed credits from age 66 to 70.

“File and suspend” At FRA, higher-earning spouse applies for his benefit and asks that it be suspended. Lower-earning spouse files for spousal benefit. Higher-earning spouse claims benefit at 70. Example: Mike and Mary are 66 Mike’s PIA is $2,400; Mary does not qualify for Social Security on her own work record. Mike wants to delay his benefit to age 70. Mary wants to file for her spousal benefit now Mike “files and suspends” at 66. This entitles Mary to her spousal benefit while Mike’s benefit continues to earn delayed credits Caution: “File and suspend” may not be done before FRA Here's an example. Let's say Mike and Mary are both 66. Mike's PIA is $2,400. Mary does not qualify for Social Security on her own work record. Mike wants to delay his benefit to age 70 to maximize it. But Mary wants to file for her spousal benefit now. So Mike files and suspends at 66. This entitles Mary to her spousal benefit while Mike's benefit continues to earn delayed credits. Please note that this does not work if Mike is under full retirement age. It is only after full retirement age that a person may voluntarily suspend their benefit in order to earn delayed credits.

Before: No “file and suspend” Mary waits until age 70 to claim spousal benefit
I'm going to show you the before and after. If Mike did not do the file-and-suspend, here's what would happen. Mary would have to wait until Mike filed for his own benefit. This means she would receive no spousal benefits for the 4 years from age 66 to 70. Let me walk you through this spreadsheet because this is part of the Social Security analysis that we do, showing you your income stream under different claiming scenarios. The spreadsheet lays out the income year by year. The column on the left shows the year. The next two columns show the spouses' ages in that year. The columns headed by yellow show the wife's monthly and annual income. The columns headed by green show the husband's monthly and annual benefit. The three columns on the right show their combined monthly and annual benefits and the cumulative total. The highlighted cells shown here illustrate the zeroes in Mary's column from 66 to 70 that are necessary because Mike didn't start his benefit until age 70.

Before: No “file and suspend” Mike starts his benefit at 66, no delayed credits
Or here's another possibility. If Mary were adamant about starting her spousal benefit at 66, Mike could go ahead and file for his benefit at 66. If he didn't suspend, though, he would not be able to earn delayed credits. The highlighted cell here shows that if he doesn't suspend, his benefit at age 70 will be $2,680.

After: “file and suspend” Mary receives over $60,000 in additional spousal benefits Mike receives maximum benefit at 70 Here's the "after." If Mike files and suspends, Mary can start her spousal benefit at 66, and Mike can start his maximum benefit at 70. Compared to the first scenario, Mary receives over $60,000 in additional spousal benefits. Compared to the second scenario, Mike has a permanent benefit of $3,538 instead of $2,680. This will give them higher income in their old age. And as we mentioned, if Mike dies, his higher benefit will transfer over to Mary and continue for as long as she lives.

“Claim now, claim more later”
At FRA, higher-earning spouse restricts his application to his spousal benefit (lower-earning spouse must have filed for benefits on her record). The second savvy spousal strategy we're going to talk about is called "Claim Social Security now, claim more later." With this strategy, the higher-earning spouse restricts his application to his spousal benefit. Normally we think of the lower-earning spouse as receiving the spousal benefit. But if both husband and wife qualify for Social Security benefits on their own earnings record, then either the wife or the husband can collect benefits based on the other's earnings record. There are certain rules you have to follow, though. For one, the lower-earning spouse must have filed for benefits. That's just a rule as we've been talking about.

At FRA, higher-earning spouse restricts his application to his spousal benefit (lower-earning spouse must have filed for benefits on her record) At 70, higher-earning spouse switches to his own maximum benefit. At 70, the higher earning spouse switches to his own maximum benefit. So he's had the advantage of receiving a spousal benefit for four years, from 66 to 70, and he can then switch to his higher benefit with all the delayed credits.

At FRA, higher-earning spouse restricts his application to his spousal benefit (lower-earning spouse must have filed for benefits on her record). At 70, higher-earning spouse switches to his own maximum benefit. Example: Larry and Linda are 66 Larry’s PIA is $2,400; Linda’s PIA is $800 Linda files for her benefit at 66 Larry files for his spousal benefit at the same time and begins collecting $400 (half of Linda’s PIA) When Larry turns 70, he switches to his maximum benefit. Linda adds on her spousal benefit Here's an example. Larry and Linda are 66. Larry's PIA is $2,400. Linda's PIA is $800. Linda files for her benefit at 66. Larry files for his spousal benefit at the same time and begins collecting $400 a month, which is half of Linda's PIA. When Larry turns 70, he switches to his maximum benefit, and Linda adds on her spousal benefit from Larry's record.

Before: No “Claim now, claim more later” Larry does not file for spousal benefit
Here's the before picture. If Larry had not filed for his spousal benefit at 66, he would receive zeroes from age 66 to 70, while he was waiting for his own benefit to build maximum delayed credits.

After: “Claim now, claim more later” Larry files for spousal benefit Receives $20,000 in additional benefits And here's the "after" picture. Larry files for his spousal benefit at 66 and receives $400 a month from age 66 to 70. This amounts to over $20,000 in additional benefits and still allows him to start his highest benefit at age 70.

“Claim now, claim more later” Rules
Procedure: Higher-earning spouse “restricts” the application to the spousal benefit. Now, there are a few procedures and rules you must follow if you want to do "claim now claim more later." First, the spouse claiming the spousal benefit would go to his Social Security office and tell them that he wants to restrict his application to his spousal benefit. If you don't do this, they will assume you are filing for your own retirement benefit. And if your retirement benefit is more than one-half of your spouse's retirement benefit, they will tell you that you are not entitled to a spousal benefit. But by restricting your application, you are not filing for your own benefit. There is no reason for them to even consider the amount of your own benefit. So make sure you say this: "I'd like to restrict my application to my spousal benefit."

Procedure: Higher-earning spouse “restricts” the application to the spousal benefit. Caution: Higher-earning spouse may not restrict application before FRA The big rule here is that you can't file a restricted application before full retirement age. So if you're thinking about starting your spousal benefit at 62 and delaying your own benefit to 70, forget it. You will have to wait until you turn full retirement age to restrict your application to your spousal benefit.

Procedure: Higher-earning spouse “restricts” the application to the spousal benefit. Caution: Higher-earning spouse may not restrict application before FRA. Only one spouse may do this (both spouses can’t receive spousal benefits on each other’s record at the same time). Only one spouse may do this. Both spouses cannot receive spousal benefits on each other's record at the same time. Here's the reason. In order for Larry to claim a spousal benefit off Linda's record, Linda must file for her own retirement benefit and Larry must restrict his application to his spousal benefit. Linda can't also claim a spousal benefit off Larry's record because he hasn't yet filed for his own benefit. He can't, if he wants to receive the spousal benefit. So couples must make a choice here. If only one spouse can get the spousal benefit, which spouse should that be? Our spousal planning software can help you decide.

Procedure: Higher-earning spouse “restricts” the application to the spousal benefit. Caution: Higher-earning spouse may not restrict application before FRA. Only one spouse may do this (both spouses can’t receive spousal benefits on each other’s record at the same time). Spousal planning analysis can determine which of the various spousal strategies will work best for your situation. We have sophisticated software that can help you analyze your various claiming options and determine the optimal claiming scenario based on your individual ages and benefit amounts. We don't try to guess which scenario is best. Rather, we enter your individual ages and benefit amounts into a specially programmed calculator, along with assumptions for life expectancies and future cost-of-living adjustments, and we can help you determine which spouse should do what and when.

Combining “file and suspend” and “claim now, claim more later”
Use when lower-earning spouse’s PIA is more than one-half of higher-earning spouse’s PIA. OK. We've covered two savvy spousal strategies. File and suspend is where the higher-earning spouse files for his benefit and then suspends it. This allows the lower-earning spouse to claim her spousal benefit sooner than she otherwise would be able to, while allowing the higher-earning spouse to earn 8% annual delayed credits from age 66 to 70. Claim-now-claim-more-later is where the higher-earning spouse files for his spousal benefit off the lower-earning spouse's record. Now we're going to talk about a way to combine these two strategies. This combination strategy applies when the lower-earning spouse's PIA is more than one-half of the higher earning spouse's PIA.

Use when lower-earning spouse’s PIA is more than one-half of higher-earning spouse’s PIA. One spouse files and suspends, the other spouse files a restricted application for the spousal benefit. With this strategy, one spouse files and suspends while the other spouse files a restricted application for the spousal benefit.

Use when lower-earning spouse’s PIA is more than one-half of higher-earning spouse’s PIA. One spouse files and suspends, the other spouse files a restricted application for the spousal benefit. Can do this as soon as the younger spouse turns FRA (not before!). You can do this as soon as the younger spouse turns full retirement age. Remember, you can't suspend your benefit before full retirement age. Neither can you file a restricted application for the spousal benefit before full retirement age. So when implementing this combination strategy, it stands to reason that both spouses must be over full retirement age.

Use when lower-earning spouse’s PIA is more than one-half of higher-earning spouse’s PIA. One spouse files and suspends, the other spouse files a restricted application for the spousal benefit. Can do this as soon as the younger spouse turns FRA (not before!). At 70, each spouse claims own maximum benefit. Then each spouse claims his or her own maximum benefit upon turning age 70.

Use when lower-earning spouse’s PIA is more than one-half of higher-earning spouse’s PIA. One spouse files and suspends, the other spouse files a restricted application for the spousal benefit. Can do this as soon as the younger spouse turns FRA (not before!). At 70, each spouse claims own maximum benefit. Example: Sam and Sue are 66 Sam’s PIA is $2,400; Sue’s PIA is $1,400 Sam files and suspends Sue files a restricted application for her spousal benefit When they turn 70, Sam resumes his suspended benefit, Sue switches to her own maximum retirement benefit Here's an example. Sam and Sue are 66. Sam's PIA is $2,400. Sue's PIA is $1,400. Sam files and suspends. Sue files a restricted application for her spousal benefit. When they turn 70, Sam resumes his suspended benefit, and Sue switches to her own maximum retirement benefit.

Here's the result. Sue starts her spousal benefit of $1,200 at age 66 and receives that benefit for four years, increased by the annual cost-of-living adjustments. When she turns 70, she switches to her own maximum benefit of $2,064. Sam starts his own maximum benefit of $3,538 when he turns 70. Why are there zeroes in Sam's column from age 66 to 70? Because, as we just discussed, both spouses cannot claim a spousal benefit at the same time. Sam and Sue had to decide which spouse should claim the spousal benefit. Because Sam's PIA was higher, it made more sense for Sue to claim the spousal benefit. But don't try to figure this out without a calculator – especially if you and your spouse are different ages. It's not always easy to figure out which spouse should claim the spousal benefit when you're working with different ages and benefit amounts. Our Savvy Social Security Spousal Planning Calculator is designed to help you with this.

Review of Savvy Social Security Spousal Strategies
Before we move on to survivor benefits, let's do a quick review of the three savvy Social Security spousal strategies we talked about.

Savvy Social Security Spousal Strategies Review
File-and-suspend Use when wife wants to claim spousal benefit while husband delays his benefit (or vice versa). The first strategy is file-and-suspend. You might use this when the wife wants to claim her spousal benefit before the husband is ready to start receiving his benefit – say he wants to delay his benefit in order to earn the 8% annual delayed credits from age 66 to 70. He files at 66 and suspends his benefit. The wife files for her spousal benefit. Then four years later he claims his maximum benefit. And because Social Security rules are gender neutral, this also works in reverse. If the husband wants to claim his spousal benefit before the wife is ready to start receiving her benefit. She would file and suspend while he claims the spousal benefit.

File-and-suspend Use when wife wants to claim spousal benefit while husband delays his benefit (or vice versa). Claim-now-claim-more-later Use when husband wants to claim spousal benefit off wife’s record (or vice versa). The second strategy is claim-now-claim-more-later. You might use this when the husband wants to receive his spousal benefit while his own retirement benefit is earning delayed credits. When he turns 66 he would file a restricted application for his spousal benefit. Then when he turns 70 he would file for his own maximum benefit. And again, this works the other way if it's the wife who wants to receive the spousal benefit while her own benefit is earning delayed credits.

File-and-suspend Use when wife wants to claim spousal benefit while husband delays his benefit (or vice versa) Claim-now-claim-more-later Use when husband wants to claim spousal benefit off wife’s record (or vice versa) Combination file-and-suspend and claim-now-claim-more-later Use for two high-earning spouses One files and suspends, the other files a restricted application for the spousal benefit The third strategy is a combination of file-and-suspend and claim-now-claim-more-later. You might use this when both spouses are relatively high earners – that is, the lower-earning spouse's PIA is more than one-half of the higher-earning spouse's PIA. With this strategy, one spouse files and suspends while the other spouse files a restricted application for spousal benefits. We can do a spousal planning analysis for you to determine which spouse should do what under your individual circumstances. This analysis is free [or give the fee if you charge for it] and it can help you get hundreds or thousands of dollars more in additional benefits than you otherwise would have known about. If you are interested in having a Savvy Social Security spousal planning analysis, just fill out the questionnaire and hand it in at the end of the presentation.

Survivor Benefits Now let's talk about Social Security survivor benefits. I hate to break this to you, but odds are one of you is going to live longer than the other. You've probably already thought about this. Hopefully you've done some estate planning to make sure your wishes are carried out after your death and that everything goes smoothly after you're gone. The most important thing to take care of is income for the surviving spouse. Usually it's the wife who lives longer than the husband – statistics bear this out – but of course lots of different things can happen. The goal with survivor planning is to provide the surviving spouse with enough income to meet her needs through her remaining lifetime. Social Security can help with this, because it pays survivor benefits that last for life. So the key in Savvy Social Security spousal planning is maximizing that survivor benefit to give the widow as much income as possible after her husband dies.

Amount of survivor benefit depends on two things
When deceased spouse originally claimed his benefit – “original” benefit When widow claims her survivor benefit – “actual” benefit Now, I want you to follow this carefully because the amount of the survivor benefit can vary greatly. It depends on two things. The first factor is when the deceased spouse originally claimed his benefit. This is called the "original" benefit. The second factor is when the surviving spouse claims that benefit. This is called the "actual" benefit. These two events are usually separated in time. For example, the husband could claim his Social Security benefit at 62 and then live another twenty or thirty years. The surviving spouse won't claim the survivor benefit until many years in the future. But the fact that he took his benefit at 62 means it will be much lower than if he had taken it at 70. Husbands often don't think about this when they are 62 and deciding when to apply for Social Security. The other factor is when the surviving spouse claims her survivor benefit. If she is over full retirement age, it doesn't matter. But if her husband dies before she turns full retirement age, and if she applies for the survivor benefit before full retirement age, the survivor benefit will be reduced.

“Original” survivor benefit based on when worker claimed his benefit
Jack and Jill are married. Jack’s PIA is $2,400. Jack dies at age 70. If he had claimed his benefit at 70, Jill’s “original” survivor benefit would be based on his benefit at the time of his death, or $3,168. If he had claimed his benefit at 62, Jill’s “original” survivor benefit would be based on 82.5% of Jack’s PIA, or $1,980. Let's look at an example. Jack and Jill are married. Jack's PIA is $2,400. Jack dies at age 70. If Jack had claimed his retirement benefit at 70, Jill's original survivor benefit would be based on his benefit at the time of his death, or $3,168. However, if he had claimed his benefit at 62, Jill's original survivor benefit would be based on 82.5% of Jack's PIA, or $1,980. If you were Jack, would you rather have Jill receive $3,168 a month after your death, or $1,980? This is why we say that the most loving thing a husband can do for his wife is delay his Social Security benefit to age 70 in order to increase the survivor benefit for his wife.

“Actual” survivor benefit based on when widow claims benefit
Jill applies at age Jill’s survivor benefit if Jack had claimed at 62 Jill’s survivor benefit if Jack had claimed at 70 60 71.5% of $2,400 $1,716 71.5% of $3,168 $2,265 61 76.25% of $2,400 $1,830 76.25% of $3,168 $2,416 62 81% of $2,400 $1,944 81% of $3,168 $2,566 63 82.5% of $2,400 $1,980 85.75% of $3,168 $2,716 64 90.50% of $3,168 $2,867 65 95.25% of $3,168 $3,018 66+ 100% of $3,168 $3,168 Now let's look at the second factor. The actual survivor benefit will be based on when the widow claims the survivor benefit. As I mentioned, if Jill is over full retirement age when Jack dies, she will get the full survivor benefit. But let's say Jack is older than Jill. Let's say she's 60 when he dies. She could go ahead and apply for her survivor benefit as early as age 60 – or even 50 if she is disabled – but the benefit will be reduced. If Jack had claimed his retirement benefit at 62, and if Jill claimed her survivor benefit at 60, she would get 71.5% of his PIA, or $1,716. At the other end of the spectrum is the maximum benefit. This occurs when Jack delays his Social Security benefit to age 70, and Jill waits until her full retirement age or later to claim her survivor benefit. In this case the original benefit is 132% of Jack's PIA, and Jill will get 100% of it, for a permanent monthly benefit of $3,168, not including annual cost-of-living adjustments. As you can see, there can be a huge difference in the amount of the surviving spouse's income depending on the decisions that you each make. These decisions will determine Jill's standard of living later in life. Assumes Jack’s PIA is $2,400 and he dies after age 70. Does not include cost-of-living adjustments.

Survivor benefits: Key points
Individual Social Security benefits stop at death. If Jack dies, his benefit will stop. As you're doing your survivor planning, here are some key things you need to know about Social Security survivor benefits. Number one, individual Social Security benefits stop at death. So if Jack dies, his retirement benefit will stop. If Jill is depending on two Social Security checks to meet household expenses, this could be quite a blow to her budget.

Individual Social Security benefits stop at death. If Jack dies, his benefit will stop. The surviving spouse is entitled to a survivor benefit equal to the deceased spouse’s benefit. Number two, the surviving spouse is entitled to a survivor benefit equal to the deceased spouse's benefit. This is only true for married couples, I should emphasize. So if you and your partner are in a committed relationship but have not gotten married, you might want to consider the availability of survivor benefits in making the decision to stay single or get married. By the way, if you are receiving survivor benefits based on a former spouse's work record, you can still receive those benefits if you remarry after age 60.

Individual Social Security benefits stop at death. If Jack dies, his benefit will stop. The surviving spouse is entitled to a survivor benefit equal to the deceased spouse’s benefit’ If Jack dies, Jill’s “original” survivor benefit will equal Jack’s benefit at the time of his death. Jill will receive the full survivor benefit if she claims it at her full retirement age or later. Jill’s own benefit will stop. The survivor benefit, as we mentioned, is equal to the deceased spouse's benefit. So if Jack dies, Jill's original survivor benefit will equal Jack's benefit at the time of his death, and Jill will receive the full amount if she claims it at her full retirement age or later. Once she starts the survivor benefit, her own benefit will stop.

Individual Social Security benefits stop at death. If Jack dies, his benefit will stop. The surviving spouse is entitled to a survivor benefit equal to the deceased spouse’s benefit’ If Jack dies, Jill’s “original” survivor benefit will equal Jack’s benefit at the time of his death. Jill will receive the full survivor benefit if she claims it at her full retirement age or later. Jill’s own benefit will stop. If widow’s own retirement benefit is higher, she will keep her own benefit. If the widow's own retirement benefit is higher than the survivor benefit, she will keep her own benefit. Whichever benefit is higher is the one that will prevail after the death of one spouse.

Survivor Planning: Maximizing Social Security for the surviving spouse
Higher-earning spouse delays own benefit to age 70. If already filed, can suspend at FRA and earn delayed credits to age 70. OK. Let's finish up by going over some planning points. As I mentioned, odds are one of you will live longer than the other. While both of you are alive and kicking now, this is the time to plan for the demise of one of you. Survivor planning involves lots of different issues, but since this presentation is about Social Security, that's what we'll focus on. What can you do to maximize Social Security income for the surviving spouse? This bullet point is directed to the high-earning spouse in the family. You should delay the start of your own retirement benefit to age 70. As we saw on the earlier table, the survivor benefit can range from 82.5% of your PIA to 132% of your PIA depending on when you originally claimed your benefit. Most people are not thinking about survivor benefits when they start Social Security at 62, so I hope I've opened your eyes to the fact that the age you are when you initially claim your Social Security benefit will directly affect your loved one's survivor benefit many years in the future. Do her a favor and wait until age 70 to start Social Security. If you've already filed for Social Security, you still may be able to rectify the situation. If you are over full retirement age, just suspend your benefit. Then you can earn the 8% annual delayed credits on the amount you're receiving at the time of suspension.

Higher-earning spouse delays own benefit to age 70. If already filed, can suspend at FRA and earn delayed credits to age 70. Surviving spouse files for survivor benefit at FRA or later. Can file for own retirement benefit at 62. Number two, and this is directed to the lower-earning spouse who will probably live longer than her husband: file for your survivor benefit at full retirement age or later. Hopefully it will be many, many years after you turn full retirement age that your husband dies, but just keep this in mind in case he dies before you turn full retirement age. If you wait until you are full retirement age to start the survivor benefit, you'll receive more than if you claim it earlier. Now, what you can do while you are waiting to reach full retirement age is file for your own retirement benefit at 62. This will not cause your survivor benefit to be reduced, and it will bring in some income for the four years from age 62 to 66.

Higher-earning spouse delays own benefit to age 70. If already filed, can suspend at FRA and earn delayed credits to age 70. Surviving spouse files for survivor benefit at FRA or later. Can file for own retirement benefit at 62. Couples must plan for the loss of one Social Security benefit. If Jill switches to her survivor benefit, her own benefit will stop. If Jill retains her own retirement benefit because it is higher, Jack’s benefit will stop. Regardless of what you do as a couple to maximize the survivor benefit, you will need to plan for the loss of one Social Security benefit. If Jill switches to her survivor benefit, her own benefit will stop. If she retains her own retirement benefit because it is higher, Jack's benefit will stop. Most couples depend on both Social Security checks to meet household expenses. If one benefit stops, this can be quite a blow to the surviving spouse's standard of living. This goes beyond Savvy Social Security planning, so we'll stop here and leave you with lots of things to think about.

Savvy Social Security Couples Planning
Make claiming decisions as a couple. Before we wrap up, let's do a quick review of Savvy Social Security couples planning. First, make your Social Security claiming decisions as a couple. Although benefits are paid to each of you individually, the decisions one spouse makes can directly affect the income of the other spouse, as we saw with survivor benefits.

Make claiming decisions as a couple. Take advantage of spousal benefits as rules allow. Two, take advantage of spousal benefits as the rules allow. We saw today that file-and-suspend and claim-now-claim-more-later take advantage of certain rules to provide spousal benefits that you may not have realized you were entitled to. But the rules are tricky, and you have to know what you're doing. We can help you plan out your strategies. You can also talk to Social Security personnel.

Make claiming decisions as a couple. Take advantage of spousal benefits as rules allow. Plan for surviving spouse’s income. While you're doing this Savvy Social Security planning, think about what will happen after one of you dies. That spouse's Social Security check will stop. So assuming the surviving spouse won't want to drastically change her lifestyle, she will need to find income from other sources to meet expenses. Figure out now where that income will come from.

Make claiming decisions as a couple. Take advantage of spousal benefits as rules allow. Plan for surviving spouse’s income. Integrate Social Security into the rest of your retirement income plan. And finally, integrate Social Security into the rest of your retirement income plan. Social Security is not enough for most people to live on. You are going to need income from other sources, whether you have a pension, retirement accounts, investment accounts, or whatever. We can help you design a comprehensive retirement income plan that integrates Social Security with the rest of your resources with the goal of providing the income you need throughout your lifetime.

Thank you! Thank you so much for your kind attention. [Take Q&A]
[Invite attendees to make an appointment for a customized analysis]

Savvy Social Security Planning for Couples

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Savvy Social Security Planning for Couples

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