Evidence suggests that many individuals may not be receiving adequate advice in selecting their social security retirement benefit. This is mainly due to the confusing spousal benefit options. While beginning the benefit at age 62, before full retirement age, is a popular option, it may not maximize the payout for both spouses and their survivors. In addition, starting your benefit before full retirement age permanently reduces your social security income by 25 percent. In 2027, this reduction increases to 30 percent.
In 2000, the Senior Citizens Freedom Act provided a new option known as File and Suspend. The spouse with the lower earnings may receive a higher retirement benefit by electing to receive 50 percent of the higher earning spouse’s social security benefit. To take advantage of this option, the lower wage earner must file to receive the payout at full retirement age (currently age 66-67). The higher earning spouse must also file at full retirement age, but elect to suspend the benefit until age 70. This spousal benefit option increases both the lower earning spouse’s benefit and the higher earning spousal benefit by 32 percent (8 percent annually). For example, John’s benefit at full retirement is $2,485 per month, while Jill’s monthly benefit is $1,058. If they elect the spousal benefit option, Jill’s benefit increases to $1,242.50, and John’s benefit at age 70 totals $3,280.
As with any financial decision, your choice should be determined by the specifics of your financial position and objectives. Factors to consider include the health of both spouses, immediate income needs, and other retirement assets. Because the Social Security retirement benefit is so important, individuals are wise to review carefully its various options.
Marty Reid is a CERTIFIED FINANANCIAL PLANNER™ practitioner. Registered Representative of and Securities and Investment Advisory Services offered through Cetera Advisor Networks LLC, Registered Broker Dealer, Member FINRA/SIPC. Reid Financial and Cetera Advisor Networks are unaffiliated.