Underlying all the tricks of the Social Security-benefits-claiming trade is the fact that timing is everything.
That's according to Mary Beth Franklin, contributing editor at InvestmentNews and resident Social Security expert, who discussed a number of methods to maximize retirement benefits in a recent webcast, “Social Security Boot Camp: Claiming Strategies.”
Ms. Franklin warned that “if you remember one thing from this webcast,” it ought to be that the “magic age is 66.”
“For married couples, it can literally mean a difference of $100,000 in income over their joint lives,” she said. “If you claim your benefits at 62, you'll take a 25% haircut the rest of your life.”
On the opposite end of the spectrum, she said, if you delay collecting benefits beyond the normal retirement age, you can increase the amount by 8% per year up to 70.
Once you've reached the “magic age,” Ms. Franklin identified two ways a worker and his or her spouse can strategically boost benefits. The first method she calls “file and suspend,” which means filing for benefits on behalf of both the worker and spouse but suspending the worker's collection until a later date. This is a strategy for traditional couples in which one spouse has little or no work history (thus making them ineligible for Social Security benefits individually).
The second method is preferable for dual-income couples and achieves a similar result as the “file and suspend” strategy. In this case, one spouse files for benefits early (pre-66) while the other waits until the magic age and files a restricted claim for spousal benefits only. That spouse ends up collecting a smaller benefit now, but the delay in filing for their own personal benefit means that when he or she does start collecting Social Security, it will be in larger amounts.
While these strategies don't have much relevance to the unmarried, divorcees shouldn't feel entirely left out. They can collect on their ex's benefits — if the marriage lasted at least 10 years.
Ms. Franklin also pointed out that, given the Supreme Court's recent ruling striking down the Defense of Marriage Act, legally married same-sex couples living in states that recognize same-sex marriages are eligible to claim Social Security benefits.
Click here to listen to an archived version and view Ms. Franklin's slides.