Billions in Social Security Not Being Claimed

Couples could collect nearly $10 billion more a year through better use of spousal benefits.

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Married couples are leaving nearly $10 billion on the table that they could be claiming from Social Security each year, according to a new study by the Center for Retirement Research at Boston College. "Strange But True: Claim Social Security Now, Claim More Later" describes how husbands and wives could increase their benefits by using Social Security's spousal benefit provision. A Social Security Administration spokesman confirms that CRR's strategy is valid. But the process is complicated, so pour yourself another shot of java or gingko biloba or whatever perks you up. Here goes:

Married individuals are allowed to begin claiming Social Security retired worker benefits as early as the age of 62. If they delay receiving benefits, the amount they get will rise by seven to eight percent a year every year, topping out at the age of 70 (this is in addition to annual cost-of-living increases in benefits). Before then, people reach what Social Security calls the "full retirement age," (FRA) which is 65 or 66 for most folks. When you reach FRA, any outside earnings you have do not reduce your Social Security benefits. Prior to reaching the FRA, such earnings can take a big bite out of your benefits. (Here's some more background on the FRA and outside earnings.) With lifespans increasing, delaying Social Security is widely advised as a good way to boost lifetime income in those later years. The key, of course, is being able to afford to defer the benefits. The research from CRR offers married couples a way to get benefits earlier from Social Security and still qualify for the higher payouts that are triggered at later benefit-claiming ages.

Instead of claiming benefits based on their own earnings, a married individual can claim half of their spouses' benefit -- the maximum payment would be half of what's called the spouse's primary insurance amount (PIA), which is the benefit when they reach their FRA. If done at the right ages, the person receiving the spousal benefit still can be entitled to their full benefit at a later date. And claiming the spousal benefit does not reduce any benefit being claimed by the other spouse. Both spouses have to be at least 62 to use this approach and one of the spouses has to have begun receiving primary retirement benefits for the other spouse to begin filing for spousal benefits. (The person claiming the spousal benefit needs to wait until their FRA to claim that benefit or the strategy won't work, the CRR says. That's because of an assumption that Social Security makes for benefit filings made prior to a person's FRA. The assumption involves what's known as a "deemed filing" or "deeming," and if you want to know more about it, take two aspirin and call me in the morning).

The CRR researchers said they initially expected what they call their "claim now, claim more later" strategy to be used by wives, who are typically three years younger than their husbands and generally have a history of lower earnings. Instead of both husband and wife waiting to claim benefits until age 70, the wife would begin claiming a spousal benefit as soon as her husband made his claim, which would make her 67 in this example (because he is waiting to claim until age 70). Under this approach, the wife could collect half her husband's PIA and still continue working if she chooses. At age 70, she then can stop receiving spousal benefits and begin claiming her own maximum worker benefit based on her earnings record. As the CRR notes, the strategy produces the most dollars for higher-earning couples where the husband and wife have similar earnings histories.

So far so good, but the researchers found that a superior strategy would reverse the claiming process so that husbands would be the ones claiming spousal benefits. That's because women live longer than men and tend to earn less during their careers. So, the optimum Social Security strategy for couples is for the wife to begin taking benefits as soon as she can, and continue claiming her own benefit until her husband dies, at which time she is entitled to his benefit as a widow. Based on life expectancies, the wife would claim her benefit at age 62, her husband would claim a spousal benefit based on his wife's earnings once he reaches his FRA (66 is the age used in the CRR example). At the age of 69, he would claim his own worker retirement benefit and stop the spousal benefit. This assumes the husband is the higher earner. If the wife has made more money, the husband would begin claiming payments at age 62 and the wife would claim spousal benefits when she reached her FRA.

Using 2006 numbers of retirees, and comparing husband-wife earnings records, CRR researchers concluded that this strategy would have increased payouts by about $9.5 billion that year. Bad news for the Social Security deficit -- good news for savvy couples.

[For more on Social Security, see Social Security Merits Support, Not Disdain.]