Social Security Spousal Claiming Options

October 04, 2016

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My objective in last month’s column was not meant to confuse you, but to enlighten you as to the how Social Security works and to give you a flavor of the complexity of the claiming decision. Let’s face it: you have paid thousands of dollars in FICA taxes over your working careers, for both yourselves and your employees. Doesn’t it make sense to get a better understanding of how it works, and when and how to claim in order to capture maximum benefits? The claiming decision should be based upon Carpenter Rules: measure twice (or thrice), cut once.

If you are married and both you and your spouse have qualified for benefits on your own personal records, there are a number of strategies to consider when it comes time to claim your benefits. I have found using examples is the best way to discuss options and strategies.

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Option 1

They both claim their benefits when Ozzie turns 66 (his Full Retirement Age)

  • In 2017, Ozzie gets $2,550 per month and Harriet gets $1,380. Joint income: $3,930 per month.
  • When Ozzie dies at 85, Harriet receives Ozzie’s benefit of $3,714, and Harriet’s benefits stop.
  • When Harriet dies at 95, all benefits stop.
  • Total benefits received by both: $1,684,000.

Option 2

Ozzie and Harriet both wait until 70 to claim their own benefits, but Harriet claims spousal benefits (Restricted Claiming Provision) when Ozzie claims at 70.

  • In 2021, Ozzie gets $3,643 per month and Harriet gets $1,380 for 2 years. Joint income: $5,230 per month.
  • When Harriet turns 70, her check increases to $2,426. Joint income in 2023: $6,217 per month.
  • Ozzie dies at 85 and Harriet gets Ozzie’s benefits of $4,902 (as opposed to $3,714 had he claimed at 66)
  • When Harriet dies at 95, all benefits stop.
  • Total benefits received by both: $2,005,000. ($321,000 more than Option 1)

They will break even in 2029, since under Option 1, checks started 4 years earlier.

Option 3

Harriet claims her own benefits when Ozzie turns 70, thus allowing Ozzie the ability to claim spousal benefits (Restricted Claiming Provision) while he still waits until 70 on his.

  • In 2017, Ozzie gets $816 per month (spousal) and Harriet gets $1414. Joint income: $2,230 per month.
  • In 2021, Ozzie gets $3,643 per month and Harriet gets $1,531. Joint income: $5,174.
  • Ozzie dies at 85 and Harriet gets Ozzie’s benefits of $4,902.
  • When Harriet dies at 95, all benefits stop.
  • Total benefits received by both: $1,972,000. ($288,000 more than Option 1, but $49,000 less than Option 2.)

In this option, both Ozzie & Harriet are able to both receive benefits in 2017 instead of having to wait another 4 years under Option 2.

When I run an analysis for a client, we explore all the different options available to them. We discuss their health and family longevity and then I make a recommendation as to what option makes the most sense for them. In the example above, I’d recommend that Option 3 would probably be the best option for Ozzie and Harriet, even though Option 2 has a higher lifetime cumulative benefit. Why? Because both Ozzie and Harriet are going to receive benefits 4 years earlier.

With the recent law change (Bipartisan Budget Act of 2015) the options above are still available and will work. However, if Ozzie and Harriet were both born after 1953, then neither Options 2 or 3 would be available, since the Restricted Claiming Provision is eliminated. However if Ozzie was born prior to 1954 and Harriet was born in 1954 or later, then Option 3 would still be available.

If Harriet did not have her 40 quarters, she would be totally dependent upon Ozzie’s record, thus she would not receive spousal benefits until he filed. Spousal benefits are 50% of the 66 amount, thus she would not receive 50% of the 70 check.

Have a great month and don’t hesitate to contact me if I can be of assistance.

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Dave Zander

Back Nine Financial

After spending the first 25 years of his career on what he calls the “front nine” (the accumulation phase), Dave has dedicated the last 16 years to the “back nine” (the income phase). He ran both Aetna’s and Lincoln National’s income divisions before starting Back Nine Financial in 2005. Back Nine is strictly an educational, consulting and speaking firm. He primarily works with CPAs, corporations and individuals to help them understand and maximize Social Security benefits. Dave has conducted Social Security Workshop across the country for a variety of audiences, including the Texas CPA Tax Institute and the CPA societies in Houston, Dallas, San Antonio and Austin for each of the last 3 years. With 10,000 Baby Boomers turning 66 every day for the next 17 years, Dave feels it is incumbent upon financial advisors, CPAs, HR departments and other professionals to make sure their clients, employees and the American public best understand not only how to take Social Security, but to also understand and integrate that claiming decision with their other assets.
 Dave is a graduate from the University of Wisconsin – Whitewater with a BBA, majoring in marketing with a minor in accounting. He left EF Hutton and gave up Wisconsin winters in 1983, moving to Houston where he met Diane. They been married 30 years and have been blessed with 2 children, Macy and Miles, who have now graduated from college and are on their own. Dave & Diane live outside of Boerne, TX.
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