Illustration by Ryan Snook
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Boost Your Income!
By Lynn Brenner, September & October 2009
If you're married or divorced, these little-known strategies can add thousands of dollars to your Social Security checks
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Every year, retirees pass up a whopping $10.1 billion in Social Security benefits—spousal benefits that most people don't even know they're entitled to. These benefits can increase your income and solve the big riddle that confronts so many of us when we first think about Social Security: whether to get immediate monthly income at 62 or wait and get a bigger check—maybe a lot bigger. If you hold off until you're 66—which the government considers Full Retirement Age (FRA) for people born from 1943 through 1954—the monthly benefit will be one-third larger than if you take it at 62. Wait until age 70 and the check will be 76 percent larger.
$10.1 billion in benefits go unclaimed every year.
The longer you live, the more that will matter—and chances are, you'll live a long time. The average 65-year-old can expect roughly 20 more years of life. Among that same group, 41 percent of women and 28 percent of men will live to age 90—and half of those women will make it to 95, as will one-third of the men.
Fortunately, spousal benefits offer a way around the riddle. If you're married—or if you're divorced after ten years of marriage and haven't remarried—you can claim a benefit not only on your own work record but also on your spouse's. No, you can't collect those benefits simultaneously. In some instances, however, you can get them consecutively: you can file first to get a spousal benefit, and then later to get your own benefit after it has grown as big as possible.
To see how spousal benefits work, consider these sample situations.
Two-Income Couples
The Scenario: Bob is 66; Kathy is 62. Based on their work records, each qualifies for a $2,000 monthly benefit at their FRA. Kathy plans to file now for her own benefit, so it'll be reduced to $1,500 (for details on how your age affects the size of the benefit you receive, go to www.ssa.gov/retirement/1943.html). Bob intends to wait until he's 70 so that his benefit will grow to $2,640.
The Better Way: Normally, when you apply for your own benefit, the Social Security Administration also looks at your spousal benefit and, if it's bigger, adds the difference. But when Kathy files for Social Security, Bob should apply only for a spousal benefit, something he can do because he has reached FRA. "He must make it clear on the form that he's restricting the application to the spousal benefit," says Social Security Administration spokesperson Mark Lassiter. "That keeps his own benefit growing 8 percent a year for four more years."
The Payoff: As a spouse, Bob gets 50 percent of the $2,000 Kathy would be entitled to at 66, an extra $1,000 a month for four years. At age 70 he can switch to his own $2,640 benefit. According to the Boston College Center for Retirement Research, in any given year about 700,000 couples stand to gain from using this approach.
One-Income Couples
The Scenario: Tom, 64, works full-time; Sandra, 60, is a homemaker. His Social Security benefit at 66 will be $2,000 a month. He'd like to wait until he's 68 to apply, which will bump the benefit to $2,320. But he's not sure he and Sandra can manage that long without it.
The Better Way: At 66, Tom should apply for his $2,000 monthly benefit, which allows Sandra to file for a spousal benefit. Tom can then—surprise—voluntarily suspend his benefit (at FRA, he has that option) so it will keep growing. Meantime, Sandra continues receiving her spousal benefit. (For details, go to www.ssa.gov/retire2/yourspouse.htm.)
The Payoff: Sandra gets $650 a month. Why not $1,000—half of Tom's benefit? Because she's only 62. No matter whose earnings record it's based on, the amount you get depends on your age when you apply for it.
Divorced Singles
The Scenario: David and Susan, both 62, were divorced after 15 years of marriage. David always earned much more than Susan. He remarried; she didn't. Susan needs income now. She figures she's stuck with her reduced benefit.
The Better Way: Since their marriage lasted at least ten years and ended more than two years ago, and Susan hasn't remarried, she is eligible for benefits based on David's record. She can file for a spousal benefit even if he hasn't yet filed for benefits himself.
The Payoff: Susan will get whichever amount is larger: her spousal benefit or the benefit based on her own work record. If she was at FRA, she could do as Bob does in the first example, limiting her application to the spousal benefit to keep her own benefit growing.
The moneymaking lesson here is to fully explore your choices. Use Social Security's online calculator (at www.socialsecurity.gov/OACT/anypia/anypia.html) to play with different assumptions, or make an appointment to visit your local Social Security office. Don't hesitate to ask agency staff to check with supervisors if they're unfamiliar with these seldom-used strategies.
Lynn Brenner is a New York City-based writer whose work has appeared in Business Week, The New York Times, and Newsday. She answers personal-finance questions online at lynnbrennersfamilyfinance.com.
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