Maximizing Your Social Security Benefits
by John Grobe |
Would you like to get a 32% higher Social Security benefit? How about being able to collect ½ of your spouse’s Social Security benefit while you are still working; with no earnings test? There’s a catch, right? Yes, there is; you must be at least your full retirement age (which is 66 or 67 for most readers of this article).
What we will discuss in this article is a technique called “restricting your benefits.” This technique will work for all FERS employees and many CSRS employees. If you have not already applied for your Social Security benefits, once you have reached your full retirement age you are allowed to restrict your application to spousal benefits only. Those who apply for Social Security prior to their full retirement age do not have this option; they are automatically given whichever is higher, their earned benefit or their spousal benefit (which is no more than 50% of what their spouse is receiving, or entitled to receive).
By this point, many readers will tune out.
- If you are going to retire at an age younger than your full retirement age and will need the money from Social Security to live on, this option is not for you.
- If you are a retired CSRS employee who is already collecting your CSRS pension, the Government Pension Offset will ensure that you are not able to collect anything off of your spouse’s earnings.
Social Security has a “spousal benefit” that a spouse is entitled to even if he or she has never worked. When Social Security came into being back in the 1930s, the typical American family had a wage earning male and a stay-at-home female. As Social Security was based on payroll taxes, that meant that the stay-at-home spouse was, in many cases, not eligible for Social Security in their own right. Spousal and survivor benefits were created to allow the spouse that did not work outside the home to be entitled to some type of benefit. Congress recognized that there was a gender disparity by originally limiting some benefits to women only (for example, “widow’s benefits,” called “survivor benefits” today, were once available only to women).
In addition, please note that the definition of spouse for all federal benefits now covers legally married same sex couples.
The Social Security earnings test can come into play for some folks too. Up until individuals reach full retirement age, their Social Security benefit is reduced if they earn above a certain amount. For 2014, the reductions are as follows:
- Between retirement and the beginning of the year in which an individual reaches full retirement age, any Social Security benefit received is reduced by $1 for every $2 earned above the amount of $15,480.
- In the year in which an individual reaches full retirement age, any Social Security benefit received is reduced by $1 for every $3 earned above $41,400.
- Beginning the first day of the month in which an individual reaches full retirement age, there is no earnings test at all.
- If an individual delays applying for Social Security benefits until after full retirement age, he or she receives “delayed retirement credits” of 8% per year up until age 70. (See: When Should You Apply for Social Security?)
Now that we have the necessary background, let’s look at the strategy of restricting your application to spousal benefits only. In order to apply for spousal benefits, your spouse has to have already applied for Social Security. This does not mean that they have to be collecting it; a future article will deal with the strategy called “file and suspend.”
Let’s say that you are age 66 (the full retirement age for anyone born between 1943 and 1954) and would be entitled to $2,000 a month on your own account and your spouse is receiving a Social Security benefit of $1,500 a month. If you apply for a spousal benefit, you will receive $750 per month. Over the 48 months between age 66 and age 70 you would receive $36,000 in spousal benefits (actually, what you received over that period would increase due to cost of living increases). When you reach 70 and apply for your own benefits, your monthly amount (exclusive of cost of living increases) would have increased to $2,640 per month. This strategy does not affect the amount of Social Security to which your spouse is entitled.
In order to restrict your application to spousal benefits only, you have to have attained your full retirement age. Therefore, you would not be subject to any earnings test on benefits received.
So who would benefit from the strategy of restricting their application to spousal benefits?
It would be a person who could afford to wait until their full retirement age to collect any Social Security benefit at all and could afford to wait until 70 to collect their own Social Security benefit. This generally means either a well-off retiree or someone who, for whatever reason, continues to work up to or past their full retirement age. A 2009 study noted that the majority of those who restrict their applications are higher income retirees.
It would more likely be a FERS individual than a CSRS individual. If a CSRS individual is already collecting their CSRS pension, the Government Pension Offset would most likely eliminate any spousal Social Security to which they were entitled.
© 2014 John Grobe. All rights reserved. This article may not be reproduced without express written consent from John Grobe.