Late in 2015, lawmakers in Washington changed rules involving some of the more creative strategies for claiming Social Security benefits. For those not of full retirement age by this past April, the ability to use the “file and suspend” technique was eliminated. This filing strategy allowed married couples to maximize their lifetime benefits.
Even so, I still see a great need for those approaching retirement to develop a Social Security filing strategy as part of their financial plan. For most retired couples, Social Security benefits represent a significant portion of their retirement income. With benefits being federally backed and inflation adjusted, maximizing benefits can have a meaningful impact on your level of retirement income.
Getting the most out of your benefits is especially important for women. Though not always true, we often see married couples in which the wife is younger than the husband. With women tending to live longer than men, their reliance on Social Security income becomes an even bigger factor in her financial well-being.
Combining longevity factors with the traditional family model, where the wife might have stayed at home with the children for part of her career or took time off to care for elderly parents, we frequently see situations where the husband’s benefit is significantly larger than the wife’s.
If the wife outlives her husband, she will claim his higher benefits when he dies, making maximization of the spouse with the higher benefit very important. Of course, this situation could be reversed by gender. In general, maximizing the larger of the benefits is a good plan.
As for maximizing Social Security benefits, most know that waiting to file past full retirement age increases the benefit and that taking benefits early, say at age 62, causes a steep reduction.
Planning points for maximizing your benefit include working longer or working part time in retirement to allow for a delay in filing for benefits. Spending part of your savings in the first part of retirement and allowing benefits to be claimed later at a higher level is also a strategy worth considering.
Most financial planners utilize software tools to calculate the best strategy based on your life expectancy, benefit levels and age differences between spouses. The best Social Security strategy also will depend on your level of savings and willingness to continue work.
For those with health conditions or illness that brings longevity into question, it might be wise to claim early at age 62. In most cases, waiting until full retirement age or until age 70 pays off if you live to 78 or older.
I suggest not guessing about the best time to file for benefits, but use online tools or the advice of a qualified planner to set out a plan for Social Security and the rest of your finances.