03 June 2010
The recent volatility in the market has caused a few clients to ask if there is anything we can do to make sure their income is not threatened. They probably are thinking about their investments, but when my answer is to look towards Social Security they tend to be surprised. Social Security can still provide a firm leg to your retirement stool; the following strategy is but one example.
I recently worked with a couple where we determined that the husband was going to wait until age 70 to take Social Security since between age 66 and 70, his benefits will increase approximately 8% for each year he waits. Thus, his benefits at 70 will be approximately 32% higher than at age 66. But his spouse has started taking her benefits already at age 62 and will simply switch over to 50% of his benefit when he starts collecting at age 70 (50% of his benefit is greater than all of hers). Most people would stop at that point and wait the four years out.But we went an extra step. We suggested that the husband apply for 50% of her benefits since Social Security allows a spouse to receive 50% spousal benefits while still accruing their personal benefits. This will not affect the husband's benefits when he turns 70. For this couple, the decision for the husband to collect spousal benefits between his age 66 and 70 will add about $500 of income per month. And in this scenario, since the husband is 66, he gets 50% of what the spouse would have qualified for had she been 66, even though she is taking hers at age 62 (and thus, she is still getting a reduced amount - the key with Social Security is the age of the person taking the benefits).
So I have been asked, what is the catch? There is not one as long as you both qualify for benefits already and the spouse that is at Full Retirement Age (FRA - in this case I am assuming 66) applies only for the spousal benefit. I recommend you work with your financial advisor since your personal situation may or may not fit this exact set of facts.
This is one of many Social Security strategies that can be used to enhance your income and add more comfort to your retirement. One thing to remember if you call or visit your local Social Security office: agency staff does not always know about all these variances since they are not utilized regularly, so do not hesitate to ask for a supervisor if you do not get the answer you are looking for right away. In the end, I believe it will be well worth your time.