How Couples Can Maximize Social Security Income Under the New Law
Q. My husband turned 66 in November, and I will turn 66 next October. We still have mortgage and student loan debt, and we’re continuing to work, though we would like to cut back. My husband believes he can suspend his Social Security benefit until age 70, apply for a spousal benefit, and use that payment to help pay down our debts. But I believe he should take his full benefit, continue working as much as he wants, and pay our debt down faster. Any advice that you may be able to offer to help us make the best decision would be appreciated. — Sallie
A: Sallie, I’m sorry to say that you and your husband are prime examples of pre-retirees whose Social Security claiming options were curbed by the new budget law recently signed by President Obama. As of May 1, no one will be able to file and suspend benefits. (Couples already using that strategy are grandfathered in.) Anyone who is younger than 62 at the end of 2015 will no longer be able to file a restricted application just for their own spousal benefit, then switch to an individual benefit later.
There is a small window of opportunity to act, but it won’t help you that much. Because your husband is now 66, which is full retirement age under Social Security rules, he will be allowed to file and suspend his benefit any time before April 29 (the last business day of the month). However, this will not permit him to collect a spousal benefit. For that to happen, you must already have filed for your own retirement benefit.
If you had already turned 66, you could file and suspend for your own benefit before April 29, which would permit your husband to file a restricted application just for spousal benefits. That move would have enabled you to defer claiming your retirement benefit for up to four years, thereby giving you delayed retired credits of 8% a year. But this strategy was viewed by some policymakers viewed as an unfair loophole, which led to the decision to eliminate it.
Since you are older than 62, however, you do have some claiming rights grandfathered under the new law. If your husband files and suspends his benefit before April 29, which he can still do, you can file a restricted application next October for just your own spousal benefit. This move would permit both you and you husband to defer collecting their own benefits—and let them grow—for up to four years.
By filing and suspending before the deadline, Sallie’s husband will also have access to another claiming option that is about to be eliminated. At any time between filing and suspending and age 70, your husband can go to Social Security and ask for his suspended benefits to be paid to him as a lump sum—the amount would be equal to the amount of cumulative benefits he would have received if he filed at age 66. He would lose any delayed retirement credits, but this lump sum option might still be of great value should your finances hit a serious bump in the road, such as big medical bills or the need for long-term care.
I’m not recommending that you take a lump sum or even defer Social Security benefits. The real issue here is whether your best strategy is to pay off current debts or to maximize your benefit payments. The right choice depends on the specifics of your financial situation. If you expect to live a long time, getting the largest possible monthly Social Security payments could be your greatest protection against running out of money. Carrying some debt for a few more years might be a worthwhile price to pay for such longevity insurance.
To really know the best course of action, you need to find out the precise levels of Social Security earnings for you and your husband. You can then use retirement planning software to look at different claiming strategies and determine what makes sense based on your debts and cash flow. If you have other retirement assets and private pension income as well, that will also play a factor in shaping your decision.
Best of luck!
Philip Moeller is an expert on retirement, aging, and health. He is co-author of The New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and is working on a companion book about Medicare. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.