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Karen Telleen-Lawton: Act Fast — Social Security Claiming Strategy Coming to a Close

I have some lucky friends who could gain well over $50,000 in the next few years if they act soon. Their luck? He was born before April 30, 1950, and she was born before Jan. 1, 1953.

A sweet Social Security deal is being phased out soon: the ability of a spouse to file for benefits but suspend receiving them, “file and suspend,” while the other files for a “restricted benefit.”

Under this claiming strategy, the couple collects some Social Security income (equal to half the higher earner’s amount) while both workers’ benefits grow to the age-70 maximum.

If your ages fit the birth dates above and you have not yet checked in with Social Security, the time is now. In the most common scenario, the older, higher earner (I’ll bend to the “he” convention for clarity) reaches full retirement age (FRA), files for benefits at the Social Security office at Paseo Nuevo, and then requests that the benefit be suspended.

That way, his future benefit continues to grow at 8 percent per year (plus any cost of living increases), up to age 70.

When the lower earner reaches FRA, she files for a “restricted” benefit (the spousal benefit only), allowing her own benefit to grow.

The couple collects this spousal benefit only until the higher earner reaches age 70, at which time the higher earner begins collecting his maxed-out benefit.

Likewise, the lower earner keeps collecting the spousal benefit until she turns 70, when she switches to her own benefit if it is higher.

For those of us who will not have attained those magic ages, we are out of luck for this perk. Instead, for the situation above, the older, higher earner may simply wait until age 70 to earn the enhanced benefit, while the lower earner collects her own benefit at her FRA.

Under the new rules, a spousal benefit cannot be collected unless the earner is receiving benefits. Once the higher earner begins collecting at age 70, the lower earner could then apply for the spousal if it is higher than her own.

Survivors will still be able to collect as before. You can think of the survivor pot as separate from the spouse pot.

A survivor could begin collecting her (or his) own benefit at age 62 (reduced for early filing) and then switch to her deceased spouse’s full benefit at her FRA with no penalty.

Or, if her benefit will be higher than the survivor, she could collect a reduced survivor benefit as early as age 60, allowing her own benefit to grow to age 70. Still lots of strategies to go around!

It sounds confusing, but a couple guidelines can help you collect your highest benefit.

1. If you collect benefits before your FRA, whatever benefit you collect will be permanently reduced (with a few exceptions such as the survivor and ex-spouse.)

2. If you expect to live past 81 and you have adequate cash flow, you usually collect more lifetime benefits by waiting to collect until you reach age 70. The best strategy depends on the relative ages and benefit amounts of the two spouses.

For my friends and their age cohorts, their good fortune has followed them into retirement!

— Karen Telleen-Lawton’s column is a mélange of observations spanning sustainability from the environment to finance, economics and justice issues. She is a fee-only financial advisor (www.DecisivePath.com) and a freelance writer (www.CanyonVoices.com). Click here to read previous columns. The opinions expressed are her own.

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