Social Security Benefits: Claim Now, Claim More Later!
Were you or your spouse born between 1950 to 1953? Read This!
Know someone who was? You owe it to them to pass this on!
If you were born before 1/2/1954 you may be leaving free Social Security money on the table. A once popular Social Security collection strategy called “Claim Now, Claim More Later” was outlawed with the budget act of 2015. Basically, a spouse was able to file a restricted application which allowed them to gain access to their spousal benefit while letting their own benefit earn 8% per year in delayed credits from the ages of 66 to 70. For those of you that don’t know, the spousal benefit is equal to 50% of your spouse’s Primary Insurance Amount or PIA. An example would be if your spouse has a monthly PIA of $2,000 you would be entitled to $1,000 in spousal benefits at your Full Retirement Age or FRA which is age 66. The good news is that anyone born before 1/2/1954 is grandfathered in, the bad news is time is running out to take advantage of this potential windfall. This is because in 2019, the last of the grandfathered cohorts turns 66 which is their FRA for Social Security collection purposes.
The sweet spot to getting the most return out of this strategy is a couple who are the same age, or close to it, and have similar Social Security benefits and were born before 1/2/1954. By filing what is known as a “Restricted Application” the spouse can collect 50% of their spouses PIA between the ages of 66 to 70 while their own benefit grows. At 70, they now switch to their own maximum benefit, which includes 4 years of delayed credits.
Let’s Look at an Example:
Let’s assume John and Jane are both 66 years old in 2019 making them eligible for this strategy. Let’s also assume that they are both entitled to a PIA of $2,800 at FRA (66). Rather than both of them collecting on their own benefit, we are going to have John collect his own benefit of $2,800 a month. Now, because John has “turned on” his benefit, Jane is able to file a restricted application for her spousal benefit which is equal to 50% of John’s PIA, or $1,400 a month. This strategy will provide them with some extra income while Jane’s benefit earns 8% per year in delayed credits until she turns 70 at which time, she will switch over to collecting off of her own benefit which will have grown from $2,800 a month to $3,696, a whopping 32% increase! Assuming they both live to 90, this strategy will give them a cumulative lifetime benefit of $1,760,640 vs. only $1,612,800 had they both filed for their own benefit at age 66 (FRA) which is a difference of $147,840!
The chart below illustrates the different potential outcomes for John and Jane.
SMALL DIFFERENCES IN BENEFITS
Timeline for Collecting benefits PIA = $2,800 PIA = $2,800
John’s individual benefits
Jane’s individual benefits
62 (75% of PIA)
66 (FRA, 100% of PIA)
70 (132% of PIA)
Below are the total lifetime Social Security benefits this couple would receive using different claiming strategies. As you can see, using the suggested strategy provides the highest lifetime benefits.
Estimated lifetime benefits
Both John and Jane live through age 90
Both collect at age 62 (Reduced Benefits)
Both collect at FRA (Full Benefits)
Both collect at age 70 (Enhanced Benefits)
Outlined strategy (Hybrid of Benefits)
John’s total individual benefits
Jane’s total individual benefits
Jane’s total spousal benefits (age 66-70)
Total combined benefits received
This illustration assumes that both earners are born prior to January 2, 1954 and they are the same age with the same PIA and life expectancy
This is a great strategy for those lucky enough to take advantage of it. In fact, the only strategy that beats it in our example is if John and Jane both wait until age 70 to collect (which only 2% of men and 4% of women actually do according to a 2015 study by the Center for Retirement Research at Boston College).
These are the criteria that need to be met to implement this strategy:
- The applicant must be born before 1/2/1954
- The applicant’s spouse must have filed for their own benefit which then allows the applicant to file for the spousal benefit
- The applicant must be Full Retirement Age or older, which is 66
- The applicant must not have previously filed for Social Security benefits
Another added benefit to this strategy is the enhanced survivor benefit that will be available to the surviving spouse should one spouse predecease the other. The surviving spouse is entitled to the higher of the two benefits going forward, $3,696 a month in this example.
If you think you or someone you know may be able to take advantage of this filing strategy, please reach out to us so we can look at your specific situation. There are a lot of other factors to consider such as income need, taxes, and longevity assumptions when deciding on the most appropriate filing strategy for you and your spouse. In addition, there is a specific way that you need to fill out the Social Security benefits application which we can help you with.
As always, it is our pleasure to serve as your financial advisors. Please pass this along to anyone you think may benefit from this article and if you have any questions please do not hesitate to give us a call.
David R Henderson
This is being provided for informational purposes only, and should not be construed as a recommendation to buy or sell any specific securities. Past performance is no guarantee of future results, and all investing involves risk. Index returns shown are not reflective of actual performance nor reflect fees and expenses applicable to investing. One cannot invest directly in an index. DCH Wealth Management, nor any of its members are tax accountants or legal attorneys, and do not provide tax or legal advice. For tax or legal advice, you should consult your tax or legal professional. The views expressed are those of DCH Wealth Management and do not necessarily reflect the views of Mutual Advisors, LLC or any of its affiliates.