As Iβve said many times before, there is no single Social Security topic I hear about more often than the current craze to maximize oneβs Social Security benefits. Easily, 75 percent of the emails I get deal with this one issue alone.
And this week, I received a couple emails that distressed me. They came from folks who have gone to their local Social Security offices demanding to initiate some Social Security maximizing strategy they claimed they have learned from my column. But the trouble is, they misunderstood something I wrote and are trying to do something they simply canβt do. Some have gone so far as to file appeals with Social Security alleging, βTom Margenau said I can do this!β One Social Security official told me they refer to these as βfrivolous Margenau cases.β
I have written many past columns discussing these maximizing strategies. But obviously, itβs time to trot out the explanations one more time.
There are two basic strategies. One is called βfile and suspend.β The other Iβve taken to calling βfile and restrict.β But the more technical term the Social Security Administration would use is βrestricting the scope of your application to spousal benefits.β
To understand the strategies, you first need to grasp some basic program policies. The first policy says that any Social Security claim filed before full retirement age is an open, or unrestricted, application. In other words, if you file for Social Security before FRA, you must file for any and all benefits you are potentially due, both on your record and on a spouseβs account. This usually means that you can NOT file for reduced benefits on a spouseβs Social Security record and then later file for full benefits on your own record. Conversely, you can NOT file for reduced retirement benefits on your own record and later switch to full benefits on a spouseβs record β unless your spouse is not yet getting Social Security at the time you apply for your own reduced retirement (By the way, this unrestricted application rule does NOT apply to benefits for widows and widowers.)
The second basic Social Security policy says that if you wait until your full retirement age to file for benefits, the first policy explained in the prior paragraph goes out the window. In other words, at age 66, you can file for one benefit and later β usually at age 70 β switch to higher benefits.
How you accomplish this almost always involves employing one of the aforementioned strategies: file and suspend or file and restrict. And that phrase βemploy one of the ... strategiesβ is one key to understanding the main point of this column: You can use one or the other strategy. You can NOT use both. (Many of the aforementioned squabbles people have been having with their local Social Security office involves folks trying to employ both strategies.)
The term βfile and suspendβ means that you file for benefits at age 66 and then immediately suspend your payments. You would do that for one of two reasons. The most common is when you have a spouse who is due little or no benefits on his or her own Social Security record. After you βfile and suspendβ (again, at age 66 or later), your spouse can then file on your account and get monthly benefits even though your own payments are in suspense. Then at 70, you would βunsuspendβ your benefits and get a 32 percent bonus added to your full monthly retirement rate.
If a spouse isnβt in the picture but you plan to wait until 70 to get the bonus, you can still file at age 66 and suspend your benefits. You would do that just in case something happens between age 66 and 70 and you decide to start your benefits before your 70th birthday. You would then have the choice of getting a pro-rated bonus added to your monthly checks, or claiming retroactive benefits to age 66 at the full retirement rate. Had you not βfiled and suspendedβ at age 66, your only option would be to simply file for your benefits and have them begin effective with your filing date. You would not have the option of taking full retroactive benefits.
The βfile and restrictβ strategy is used when you have a spouse already getting benefits. At age 66, (and again, waiting until age 66 is the key), you can file for benefits on your spouseβs record (thatβs called βrestricting the scope of your applicationβ) and collect those benefits until age 70, when you would switch to 132 percent of your retirement rate.
I apparently canβt repeat often enough that you can NOT employ both strategies. I will give a quick example. Tom is age 66. He wants to delay taking his own Social Security benefits until age 70. His wife, Becky, is 61 and plans to retire at age 62. She is potentially due a much smaller Social Security benefit than her husband. Tom has two maximizing options.
Option 1: He can βfile and suspendβ at age 66. Then when his wife turns 62, she can file for her own reduced benefits and claim any extra spousal benefits she is due on Tomβs record even while his benefits are in suspension.
Option 2: He can do nothing at age 66, but wait a year until his wife is 62 years old. After Becky files for her own reduced retirement benefits, Tom can βfile and restrict.β He would file for husbandβs benefits on Beckyβs record, getting an amount equal to one half of her age-66 rate (even though she took reduced retirement benefits). Then at age 70, he would file for his own retirement benefits and claim 132 percent of his own rate. And at that time, Becky could then file for wifeβs benefits on Tomβs record to supplement her own reduced benefits.
Tom will have to dig out a calculator and βrun the numbersβ to figure out which way to go. My educated guess is option two is the most lucrative.
But to repeat one final time: he can NOT start out with option one and later switch to option two.
To learn more about these strategies, send me an email asking for my fact sheet, βWhen to take your Social Security benefits.β I charge a small fee ($5) for the fact sheet, which I will explain when you send your email.
