Financial Abundance

Let’s explore some little known tips on Social Security benefits that could provide thousands of additional retirement dollars to you or your parents. 

Did you know that If two spouses are 64 years old, there is a 40% probability that at least one spouse will live to be over 90 and an 80% probability that at least on spouse will live past age 82?  If both spouses are in good physical shape, these percentages go even higher.

Let’s assume that both spouses are 66, their full retirement age (FRA). If one spouse has earned more than double the Social Security benefit of the other spouse, the lower earning spouse may claim a Social Security benefits that is 50% of the higher earning spouse’s benefit. 

When the higher earning spouse waits until age 70 to begin taking benefits, the combined lifetime Social Security benefits may be significantly greater.  At age 70, the higher earning spouse will receive 132% of the benefit they would receive at age 66 plus four years of cost of living adjustments (COLA).  For the lower earning spouse to begin receiving benefits, the higher earner can “file and suspend” their Social Security benefits until they reach age 70.  At the FRA age of 66, the lower earner will receive 50% of the higher earner’s full FRA benefits. 

If the higher earning spouse dies first, the survivor can claim the full Social Security benefit of their spouse.  Thus, for the rest of the survivor’s life, they will get 132% of their spouse’s FRA Social Security benefits, plus annual cost of living (COLA) increases.  Let’s look at how the “file and suspend” strategy can increase the total Social Security benefits over the two lifetimes.

Assume that the higher earning spouse will receive $2500/ month at their FRA age of 66.  Let’s also assume that one spouse will die at age 80 and the other will live to age 90.  Remember, there is at least a 40% probability of one souse living past age 90.

With a 3% annual inflation rate, if both spouses begin taking Social Security benefits at age 66, their total income with the previous assumptions will be approximately $1,373K.  If the higher earning spouse files and suspends payments until age 70, the total income that the couple would receive over the same period is approximately $1,577K. 

By the higher earner waiting until age 70 to begin receiving benefits, the couple’s combined income is increased by $184K, with the surviving spouse receiving $171K more over their final 10 years of life.  Obviously, this scenario provides the highest possibility of working if both spouses are in good health at age 66. 

While the above approach may not be suitable for you, it demonstrates the importance of understanding the complex rules of Social Security.  It is important to know the rules so you can decide how to maximize your Social Security benefits. 

What if you have already begun taking Social Security and now realize that you should have waited.  If you are under age 70, Social Security provides a “do over” capability.  Next month, we will explain this “mulligan” approach in more detail.

When you are ready to start your Social Security planning, I recommend that you read Getting Started in a Financially Secure Retirement, written by my friend and colleague, Henry (“Bud”) Hebeler.  If you still need help in deciding your Social Security strategy, give me a call and I will be happy to provide complimentary Social Security planning support.  Proper Social Security planning is an important piece of maintaining an abundant retirement.