Earlier this fall the Bipartisan Budget Act of 2015 was passed. This was important to folks looking to maximize Social Security benefits because two of the primary strategies for maximization were eliminated with the passage of this legislation. You may be wondering if there are any strategies left to help maximize benefits – and as it turns out, there are still a few things you can do. Four of these strategies apply to anyone, while the last two only apply to married couples. (Note: if you were born in 1953 or before, you have more options available to you as a result of the grandfathering of some rules. See The Death of File & Suspend and Restricted Application for more details.)
Delaying benefits beyond age 62 or your full retirement age (FRA) continues to provide a strategy for increasing your benefits. In fact, this strategy alone is likely the most beneficial of all strategies dealing with maximizing benefits. The chart below represents the increase in benefits that you can expect by delaying from one age to the next.
You may be wondering why the increase is less than 8% in the years following Full Retirement Age. This is because when you earn the 8% per year delay credit, that credit is applied to your Full Retirement Age amount. If you compare the amount you’d receive at 66 with the amount you would receive at age 70, the increase is 32% – 8% per year for four years. But each year-over-year increase is being compared to the prior year, not the FRA year.
Another option that has undergone a change over the years is the “do-over”. This is where you file for Social Security benefits and then change your mind and withdraw your application. In order to do you, you must pay back all benefits received to-date, and you can only do this within the first 12 months of receiving benefits. You also are limited to enacting this strategy only once in your lifetime.
Even with the limits, the do-over might be useful. For example, if you are delaying your benefits to age 70, and you have reached age 69. If you wanted to, you could apply for Social Security benefits now, and receive benefits for just less than a full year, having the money available to you to do as you wish during that time. Then, assuming nothing has changed about your life (health outlook is still good, no reason to believe you wouldn’t live a long, full life), you could pay back the money that you’ve been receiving for the past 11 months and withdraw your earlier application. Then you could re-apply for benefits as of your 70th birthday, with an increased amount.
On the other hand, if something happened during the intervening year and you decided you wanted to keep the benefits you’ve received for the year, just keep them and continue receiving benefits at the same level.
The example uses the ages of 69 and 70, but you could enact this strategy at any age from 62 onward. For example, you could file at age 65, wait 11 months, then withdraw your application and pay back the benefits. Then you could re-apply immediately, wait a year, two years, or four more years to re-apply.
Earning More Than the Limits
When you are receiving Social Security benefits and you are younger than your Full Retirement Age, earning more than certain limits can result in Social Security’s withholding some benefits – potentially even eliminating the current benefits you’re receiving. But the other thing that happens when these benefits are withheld is that you will eventually receive credit for those withheld months. This means that your filing date will be reset when you reach Full Retirement Age – increasing your available benefits. This strategy only applies while you are younger than FRA. After FRA you can earn as much as you like and no benefits will be withheld.
For example, if you started receiving Social Security benefits at age 62 and earned enough during the four years prior to reaching FRA to have four months’ worth of benefits withheld each year, a total of 16 months’ benefits were withheld. When you reach FRA, your filing date will be re-set from your age 62 to age 63 and 4 months (16 months later). This would have the effect of increasing your benefit by 9.49% from the age 62 amount. So if you were receiving $750 per month, the increase would bring your benefit to $821.
If your own benefit is being withheld due to over-earning, any other benefits paid on your record (such as spousal or other dependent’s benefits) will also be withheld. Unfortunately those withheld benefits are not credited back to your dependents later – they are gone for good.
Although the Bipartisan Budget Act of 2015 (BBA15) made major changes to the “suspend” option, it can still be a viable strategy for some folks. In the past, suspend was usually considered a complement to “file” – you only heard of “file and suspend”. But in the new world after BBA15, you might find it advantageous to use a suspend strategy under certain circumstances. This is often referred to as “start-stop-start”.
For example, Steve is about to reach age 62, his wife Janice is 59, and they have an adopted son Joel, age 13, who is in their care. Steve’s PIA is $2,000. Steve can start his Social Security benefits at 62, which will make both Janice and Joel eligible for benefits based on Steve’s record. Janice can receive $762 monthly as a mother’s benefit, Joel can also receive $762 (these are less than 50% due to the family maximum limit). Steve will also receive $1,500 for his own benefit. The household total will be $3,024.
When Joel reaches age 16, Janice’s mother’s benefit will cease, and Joel’s dependent benefit will increase to $1,000. Steve is now age 65. When Joel reaches age 18, his dependent benefit will cease as well. Steve, now at age 67, could suspend his benefit, delaying for 3 years to pick up the delayed retirement credits. If he does this, his benefit at age 70 would have grown to $1,860 (from his reduced $1,500).
At the same time, when Steve suspends his benefit, Janice could start her benefit, providing some additional income during that period of time. The only thing that could not be done at that stage is for Janice to take a Spousal benefit, since Steve’s benefit is suspended.
This way Steve has maximized benefits for his own family circumstance early on, and then increases his benefit for later in life via suspending. As long as Steve isn’t working and earning more than the minimums (see above) this should work out just fine.
Adding Spousal Benefits Later
Another option that might be helpful for a couple is to time the filings so that one spouse can delay receipt of spousal benefits until later.
Taking the case of Steve and Janice above – when Steve suspends his benefits at age 67, Janice is age 64. Her PIA is $800, and so if she starts her benefit at exactly age 64 she could receive $693, a reduction of just over $100 from her PIA. Then, when Steve reaches age 70 and files for his own benefit again (Janice is now 67), Janice can add the Spousal Benefit to her reduced benefit.
The Spousal Benefit for Janice would be calculated as: 50% of Steve’s PIA ($1,000) minus Janice’s PIA ($800) which equals $200. This is the Spousal Benefit “excess” that will be added to Janice’s reduced benefit of $693, for a total of $893.
Maximizing Survivor Benefits
For a couple with similar PIAs and close ages, it may make sense to take one benefit earlier and the other later. This is to maximize the Survivor Benefit while receiving the most benefits early on in the process.
Take for example Beth, age 62 and Samantha, age 60, married for 3 years. Beth has a PIA of $2,200, and Samantha’s PIA is $1,800. Since their PIAs are fairly close in amount to one another, it is likely that neither would ever receive a spousal benefit based on the other’s record. Therefore we are mostly looking at two separate individuals’ records, with the difference being that one of the benefits will continue on in the event of the death of the first member of the couple.
Since Samantha’s PIA is smaller, it may make sense for her to file for her Social Security benefits at the earliest age, 62. This will result in a reduction of her benefits to approximately $1,300, but she will receive this benefit right away, and will receive it (with annual COLAs applied) until either she or Beth dies.
Beth, on the other hand, having the larger PIA, should delay receipt of benefits as long as possible in order to maximize her own benefit and the amount of benefits available as a Survivor Benefit to Samantha in the case if Beth should die first. Beth would receive approximately $2,904 if she delays to age 70 – and upon her passing, Samantha would receive this amount as well (Samantha’s benefit would cease at that time).