In December 2014, Social Security provided retirement benefits to 26.3 million women aged 62 and older. Remarkably, only about half of these women received benefits based on their own earnings, while the rest received benefits partly or fully based on their spouse’s earnings. However, a significant change is coming in 2024: the end of a Social Security spousal rule that allowed couples to maximize their benefits.
If you didn’t turn 70 by January 1, 2024, you can no longer use the old strategy that let couples optimize their Social Security income. With many married couples depending on Social Security for a large part of their retirement income, it’s essential to understand how this rule change might affect your financial future. Fortunately, there are still strategies you can use to make the most of your benefits.
Understanding the Expired Rule
The old rule allowed the higher-earning spouse to claim spousal benefits at their full retirement age while the other spouse claimed their own benefits. Then, the higher earner could switch to their own benefits at age 70, taking advantage of delayed retirement credits to increase their monthly payment. At the same time, the lower-earning spouse could choose between their own benefit or the spousal benefit, depending on which was higher.
This “file and suspend” strategy was popular among couples. It allowed the higher earner to file for benefits at full retirement age but immediately suspend them, so the lower earner could claim spousal benefits. Meanwhile, the higher earner’s own benefits continued to grow until age 70. Congress ended this strategy in 2015 but allowed those born before January 2, 1954, to use it. With this option no longer available, it’s important to explore new strategies to optimize your Social Security income.
Strategy #1: Plan Ahead as a Couple
Even though the spousal rule is ending, you can still maximize your Social Security benefits by planning together with your spouse. Start by discussing who should claim benefits and when. Social Security will always pay the higher of an individual’s benefits or spousal benefits to the lower earner. To make informed decisions, create online accounts with the Social Security Administration and review your estimated benefits at various ages.
Have an open conversation with your spouse about your retirement goals and run the numbers together. By doing this, you can figure out the best claiming strategy for your situation and ensure that you both make the most of your Social Security income.
Strategy #2: Avoid Claiming Benefits Too Early
You can start claiming Social Security benefits as early as age 62, but doing so can result in a significant reduction in your monthly benefits—up to 30%. For example, if your full retirement benefit is $2,000 per month at age 67, claiming at 62 could reduce it to $1,400. Since a spouse’s benefit is based on the primary beneficiary’s payout, claiming early can also reduce the spousal benefit.
If possible, wait until you reach your full retirement age to start claiming benefits. For those born in 1960 or later, the full retirement age is 67. Waiting until your full retirement age ensures you receive the maximum possible benefit.
Strategy #3: Consider Timing Carefully
On the other hand, waiting until age 70 to claim benefits might not always be the best choice for everyone. Although delaying benefits past your full retirement age increases the primary beneficiary’s monthly payment, spousal benefits are capped at 50% of the primary’s full retirement benefit, not the increased amount from delaying. Therefore, there’s less incentive for spouses to wait beyond their full retirement age to start benefits.
One option is for the lower-earning spouse to claim reduced benefits as early as 62, which provides some immediate cash flow while allowing the higher earner to delay their benefits until age 70. This approach ensures that survivor benefits are unaffected if the lower earner passes away after reaching full retirement age.
The Bottom Line
The end of the Social Security spousal rule might be a setback for some couples, but there are still ways to manage your benefits effectively. By planning ahead, avoiding early claims, and understanding the details of spousal and survivor benefits, you can still optimize your Social Security income. Each individual’s situation is unique, so consulting with a financial advisor who specializes in Social Security planning can help you make the best decisions for your needs and goals. With thoughtful planning, you can continue to make the most of this crucial retirement resource.
source: Social Security Administration, viral-chatter.com