In the first two installments on social security we covered the importance of social security to the vast majority of retirees in meeting their everyday living expenses. See, Social Security or Insecurity — for Future Retirees that is the Big Question and Social Security – It’s about Time and Money. We also learned how life expectancy plays a significant role in determining when an individual should begin taking benefits. Here we will cover an additional strategy you can use as a couple to supersize your social security lifetime payouts. It is extremely common for us to find $100,000 or more in additional lifetime benefits for our clients utilizing strategies similar to this. This additional money can allow you to retire earlier, do more in retirement, or simply have more peace of mind.
File/Suspend with Restricted Application Strategy
The individual with the highest income files/suspends and the spouse with the lower income submits a restricted application. In other words, the higher wage earner applies for and suspends taking benefits until they reach 70. The higher wage earner can file at or after their full retirement age (FRA) as defined by social security, at which time the spouse files for and begins taking spousal benefits. The higher wage earner then files for and begins their own benefit at age 70, at the higher benefit amount.
The lower wage earner makes a restricted application at their full retirement age. The restricted application allows the account holder to apply only for the “spousal benefit” they would be due under social security’s dual entitlement rules. At any time after full retirement age, the lower wage earner can then switch, and receive benefits based on their own work history.
Let us look at how this would play out using an example of Jim and Sue who are one year apart on age (Jim is the older one.) Jim and Sue are in excellent physical health, take care of themselves, and both have longevity in their family histories. Therefore, Jim has a life expectancy of age 90 and Sue has a life expectancy of 99. Jim is a high-income earner and Sue is a homemaker. If they were both to take benefits at their full retirement age of 66, Jim would receive 32,228 and Sue would receive $16,114. Their total estimated lifetime benefits would be a little over $1.51 million. However, if Jim was to file/suspend and Sue was to do a restricted application as outlined above; their total estimated benefits would raise over $160,000 to north of $1.67 million. I don’t know about you but I could think of a lot of things to do with that extra money.
The life expectancy and expected benefits of you and your spouse is important in selecting the right social security strategy for your situation. As you can see from this example the stakes are quite high. Therefore, it is well worth taking the time and sitting down with an experienced fee-only retirement specialist to help you find the best strategy for you. It can make all the difference in making your retirement years truly golden.
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