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Keys to Maximizing Lifetime Social Security Benefits

Leveraging Spousal Benefits Using a Restricted Application

The Bipartisan Budget Agreement of 2015 will eventually eliminate the strategy to leverage spousal benefits using a restricted application. However, due to grandfathering, if you were born on January 1, 1954, or earlier, you can still execute the strategy as explained below. If you do not meet the deadline, whenever you file for benefits you will be deemed to be filing for all the benefits you are entitled to and Social Security will pay out the largest benefit you qualify for.

If you qualify, filing a restricted application for “spousal benefits only” is a great way to leverage spousal benefits in order to maximize lifetime income from Social Security.

This strategy works great for married couples in which both spouses are entitled to Social Security benefits on their own work records. Understanding this strategy requires us to flip our thinking when it comes to spousal benefits. In the case of a husband and wife where one spouse typically earns more than the other, we typically think of the higher-earning spouse as the primary earner when it comes to claiming Social Security and the lower earner as the spouse who would potentially collect spousal benefits based on the primary earner’s work record.

Remembering that spouses cannot claim spousal benefits until the other spouse has filed for or is receiving benefits, the strategy works like this: The lower-earning spouse files for Social Security as early as age 62. Then, upon reaching full retirement age (FRA), the higher earner goes to Social Security and files a restricted application for “spousal benefits only.” The higher-earning spouse will then receive spousal benefits based on the lower-earning spouse’s work record. Meanwhile, the higher-earning spouse will accrue delayed retirement credits (DRCs) on the benefits based on his or her own work record. The DRCs will accrue at a rate of 8% per year of the higher earner’s FRA amount (simple interest) until he or she reaches age 70, at which point he or she will turn off the spousal benefit and turn on his/her worker’s benefits, which are now at their maximum amount.

Let’s look at an example. We have John at age 66 (his FRA) with a $2,000 per month FRA amount and Jane at age 62 with a $1,300 per month FRA amount. Jane files for her own benefit and receives a permanently reduced amount of $975 per month. Since John is at his FRA, he can file a restricted application for “spousal benefits only” off of Jane’s work record. He begins to receive $650 per month (50% of Jane’s FRA amount). Now John’s worker’s benefit earns DRCs until he turns age 70, at which point he will receive 132% of his FRA amount, or $2,640 per month. He would also receive each annual cost of living adjustment, provided there is one. The key is for the primary earner to be at their FRA. You cannot file a restricted application prior to your FRA.

Divorced spouses who were married for ten or more years and have been divorced for at least two years can also utilize this strategy. One major difference is the former spouse does not have to be currently receiving benefits but must be at least 62 years old before the individual who has reached their FRA can file restricted for ex-spousal benefits. If both former spouses were born on January 1, 1954, or earlier, they can both technically receive ex-spousal benefits off one another’s work record at the same time. This is the only instance when both individuals can file restricted applications and received ex-spousal benefits at the same time.