Dear Rusty: I’ve seen examples of how to maximize Social Security, but I’ve never seen an analysis for our situation. I’m 61 and my wife is 57, but she has been the primary breadwinner, while I just barely made eligibility. Our plan is for me to start at age 62 ($500 a month) and then switch to my spousal benefit at age 74 when she starts her benefits at age 70 (her benefits should be $2,500 a month). Are we missing anything? We are both in good health with an average life expectancy but there is a very good chance my wife will exceed the “average.” Signed: Planning Ahead
Dear Planning: Well first, be aware that Social Security’s rules are “gender neutral” – that is, the rules are the same regardless of which of you is the higher earner. That said, you and your wife seem to have a good strategy, for with her as the higher earner with the highest benefit, maximizing her SS payment by waiting until age 70 is an excellent plan. Since her longevity outlook is very good, she should get the most in cumulative life-time benefits by waiting. Your plan to claim at age 62 is also prudent if you will not be working full time. That’s because if you claim before your full retirement age (FRA), you’ll be subject to an earnings test, which limits how much you can earn before SS takes back some of your benefits.
If you exceed the earnings limit, Social Security will assess a penalty of $1 for every $2 you are over the limit and take back benefits equal to that amount. For example, if you were collecting SS this year the earnings limit is $18,240. If you earned $25,000, you’d be $6,760 over the limit and SS would take back benefits equal to $3,380. And at your $500 monthly benefit rate, they would withhold benefits for 7 months to recover what you owe. And that’s true until you reach your full retirement age when the earnings limit goes away (born in 1959, your FRA is 66 years and 10 months). At your FRA you would get time credit for any withheld months, but if you’re planning on that SS income starting at age 62, and you’re still working, the earnings limit could derail your benefit income plan. Of course, if you won’t be working after you claim early benefits, the earnings limit doesn’t apply. And for clarity, your wife’s earnings from working don’t count toward your personal earnings limit, and the limit goes up considerably in the year you reach your FRA. If you plan to continue working and the earnings limit is an issue, you might choose to wait until your FRA to claim your benefit. By doing so you would avoid the earnings limit, and you would also assure that you would receive the full 50% of your wife’s FRA benefit amount when she claims.
If you claim at age 62, your spousal benefit (when your wife claims) will be less than half of your wife’s FRA benefit amount because you claimed your own benefit early. Your spousal benefit will consist of both your own (reduced) benefit and a spousal boost to bring you up to your spouse benefit amount. When your wife claims at age 70, your spousal boost (the difference between your full FRA benefit amount and half of her FRA benefit amount) will be added to your own (reduced) early SS benefit, yielding a spousal benefit less than half of your wife’s FRA benefit amount. The only way you can get the full 50% spouse benefit is to wait until your own FRA to claim your own Social Security and later get the higher spouse benefit for the rest of your life.
In the end, your health, financial need and life expectancy should be the primary factors considered when deciding when to claim.
Russell Gloor is an Association of Mature American Citizens certified social security advisor. To submit a question, visit amacfoundation.org/programs/social-security-advisory or email ssadvisor@amacfoundation.org.
