When Does It Pay to Wait for Social Security?

Q: My husband and I have a burning conundrum. He will be 67 in March 2016, is still working and intends to for the foreseeable future until we are able to leave the New York area. I turned 64 in October and am currently collecting unemployment which ends at the end of January. I have been unsuccessful in finding employment and we will thus have to take Social Security in some form, which we are not doing currently. If I file now on my own, my monthly benefit will be around $1,600. If he files and suspends, the way I read it, my spousal benefit would be 41 2/3% of his full retirement age benefit of about $2,700. What should we do? I wish we did not need the money but we do. I continue to search for work but I am afraid age discrimination is my enemy. -- Joanne

A: I'm sorry to learn of your employment problems. Unfortunately, research has found that it takes older jobseekers much longer to find new jobs than younger ones. But I urge you to keep at it. Who knows?

In terms of Social Security claiming options, I think there is a superior strategy for you. It might squeeze you a bit in the short run, but it will leave you in much better shape in the long term.

As you may know, recent changes to Social Security laws will restrict claiming options for millions of people when the new law takes effect at the end of April 2016. Fortunately, you and your husband are well-positioned to take advantage of claiming options that will no longer be available to most people at that time.

First off, your husband can file-and-suspend at any time before the end of April. Given possible processing delays and mix-ups at Social Security (which happen all the time, unfortunately), I have adopted an "earlier the better" approach to claiming decisions, accompanied by the need to get the agency on record about your claiming preferences.

File-and-suspend is going away at the end of April, so your husband should do it now. This will trigger your eligibility to file a restricted application at a later date. It also will entitle him to the option of getting a lump-sum payment equal to the cumulative value of all of his suspended benefits. While your current plans do not include him needing to do this, it's a great option to have in case unforeseen financial or medical emergencies occur.

The tough call here is that I urge you to wait to collect your spousal benefit until you turn 66 in October 2017. I know this is a long time to wait. But if you can, you will get a full spousal benefit of half of your husband's age-66 entitlement, or about $1,350 a month. If you filed for this at 64, you would incur two years of benefit reductions – more than 13%, not the 8% you cited.

More importantly, waiting will allow you at age 66 to file a restricted application for only your spousal benefit, permitting your own retirement benefit to grow until age 70. The right to file a restricted application is also being ended under the new rules, but not for anyone who is at least 62 by the end of 2015. That includes you. This group of people is grandfathered under the new law and will retain the right to file a restricted application when they turn 66.

If your age 64 benefit is about $1,600, your age 70 benefit will be roughly 45% higher, or more than $2,300 a month—an extra $700 a month you would get for the rest of your life.

Again, I know this is a tough spot. But if your husband files and suspends, and you file for a spousal benefit before age 66, you will be deemed to also be filing for your own retirement benefit at the same time. It will also be hit with early claiming reductions and you won't get both benefits but just the greater amount of two reduced benefits. What a lousy choice.

If you have retirement savings, seriously consider spending them down if it allows you to maximize your Social Security dollars. Social Security dollars, I would emphasize, are guaranteed by Uncle Sam (still worth something), increase each year to keep pace with inflation (retirement account holdings do not), and are taxed at more favorable rates than ordinary income from a retirement account.

I know this advice is a lot easier for me to give than for you to follow. 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.