When it’s time to apply for Social Security benefits, many married and divorced individuals may not realize they have a choice. If …
… they may claim either:
The restricted application strategy enables a client to apply for Social Security benefits but restrict the claim so that he or she is receiving only the spousal benefit. It’s important to note that the Social Security Administration will be phasing out the restricted application at a future, yet-to-be-announced date. However, clients employing this strategy are grandfathered in and may continue to use it.
For each year beyond FRA that a client defers taking his or her retirement benefit, that benefit receives a credit of 8% per year up to age 70.
While the retirement benefit is deferred, taking the spousal benefit enables the married couple to still have income. Specifically, taking a spousal benefit after FRA results in income equal to half of the spouse’s (or former spouse’s) full retirement benefit. (Spousal benefits will be reduced if the client has not attained FRA.)
If clients are married, this also may result in extra income for the surviving spouse when the other spouse dies. This is because Social Security pays surviving spouses the larger of:
So, for example, a husband who earned more than his wife and defers his retirement benefit beyond FRA, may increase both:
While electing the restricted application can be a smart move for some, it’s not for everyone. Your client’s current need for income, family situation, and health should all be considered before employing this strategy.
Example: A wife, age 62, and her husband, age 66, want to retire at the same time. Each is eligible for a $2,000 per month retirement benefit at his/her FRA of 66. However, because the wife has not reached her FRA, her monthly benefit will be reduced if she retires now and begins receiving benefits.
1Claiming an early retirement benefit can result in up to 25% reduction in retirement benefits.
2Because the husband is at FRA, his spousal benefit equals half of his wife’s full, rather than reduced, retirement benefit.
3Rate of increase is based on an individual born in 1943 or later who defers retirement benefits until after FRA.
Example: A formerly married woman wants to retire at age 66. She and her ex-husband are eligible for a $2,000 per month retirement benefit at FRA. She can choose to defer her retirement benefit and, instead, claim a spousal benefit based on her ex-husband's Social Security benefits as long as all the following are true:
If this is the case, she can claim a spousal benefit equal to 50% of her ex-husband’s full retirement benefit.
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