Many of us feel we know the basics of Social Security, but did you know there are hundreds of different ways to claim you benefits? While we can’t cover all of them, we can offer strategies to help keep your retirement goals on track as you progress into this new life stage.
1. Retirement Benefits for Children
You don’t frequently hear about retirement benefits for children, but it is possible for a minor child to receive a dependent benefit while the earner (or number holder) is still alive. An unmarried child can receive up to 50% of your full retirement benefit, assuming you are entitled to the benefits yourself. In addition to being unmarried, the child must also be under 18 (or under 19 and a full-time student in grade 12 or lower), or 18 or older with a disability that began before age 22. If your spouse is caring for a child under age 16 (or disabled) and receiving benefits, your spouse can also receive a benefit no matter how old he or she is. It is important to note that there is a limit on the benefits that can be paid to you as the number holder, and your family. Commonly referred to as the “family maximum,” it is usually between 150% and 180% of your full retirement age benefit.
There are a number of unique strategies for spousal benefits, several of which we outline below.
2. Receiving “Spousal Only” Benefits to Earn Delayed Retirement Credits
Note: New deemed filing rules only make this strategy applicable if you turned 62 prior to January 2, 2016, or receive a spousal benefit because you are caring for a child who is under age 16 or disabled, or you are entitled to disability.
The strategy to receive “spousal only” benefits is by filing a restricted application. If you are full retirement age or older, you are able to restrict your application for Social Security benefits to exclude your own retirement benefit. In other words, you are able to elect to receive only the spousal benefit you are eligible for, and delay receiving your own retirement benefit. By restricting your application to only your spousal benefit, your retirement benefit can increase because of delayed retirement credits until you start it (up to age 70). In order for this strategy to work, your spouse must have already filed for benefits, thus unlocking their record for you.
3. Spousal Benefit Calculation
If your spouse has adequate work history to be eligible for Social Security retirement benefits, you may be able to receive up to 50% of their full retirement age benefit as a spousal benefit. However, if you are also eligible for retirement benefits based on your own earnings history, the calculation gets a little more complicated, and may be illustrated best by an example. If you are eligible for a full retirement age benefit of $500 based on your own earnings history, and $1,000 as a spouse, the most you can receive is $1,000. That $1,000 will be a combination of your own $500 benefit and a $500 “excess spousal” benefit. Either or both your retirement benefit and excess spousal benefit may be subject to reduction if you begin early.
4. Deemed Filing and Spousal Benefits
Generally speaking, if you file for Social Security benefits prior to your full retirement age, you are “deemed” to have filed for any and all benefits you are eligible for. The result of this is that your retirement benefit and spousal benefit may be permanently reduced. If your spouse has not yet filed for retirement benefits when you do, their earnings record essentially does not exist — and is not available to you — when you file. The downside to this is that you cannot immediately receive any excess spousal benefit when you file. The upside to this is that your excess spousal benefit may not be subject to reduction when your spouse does file.
For example, assume again that your full retirement benefit is $500 per month, and half of your spouse’s full retirement benefit is $1,000. That would mean your excess spousal benefit would be $500. If you file for retirement benefits at 62 (assuming your full retirement age is 66), you would receive $375 per month (75% of $500). Now let’s assume that your spouse files for their retirement benefit when you are full retirement age. Your monthly benefit will now be $875, comprised of your reduced retirement benefit of $375 plus your unreduced excess spousal benefit of $500 (with the excess spousal benefit portion being unreduced because it didn’t begin until full retirement age).
5. Switching Between Survivor and Retirement Benefits
Oftentimes, a widow or widower is eligible for a survivor benefit based on a deceased spouse’s earnings record as well as a retirement benefit based on their own historical earnings. Under these circumstances, the widow(er) should investigate whether it would be beneficial to begin one of their benefits early (albeit at a reduced level), while later switching to the other benefit. When reviewing the options, it is important to keep in mind that both retirement and survivor benefits are subject to the retirement earnings test, and that survivor benefits do not increase (other than by the standard cost of living adjustment calculations) after full retirement age.
6. And Finally — the Benefit Do-Over
Determining when to start receiving your Social Security retirement benefits can be a difficult decision, and sometimes circumstances change. Therefore, within 12 months of becoming entitled to retirement benefits, you have the ability to withdraw your Social Security claim, repay all of the benefits you and your family received based on your application, and re-apply at a future date. This can be thought of as a one-time do-over, as it is available only once per lifetime. Remember that you will not be able to withdraw your application if it is 12 months or more since you became entitled to retirement benefits.
Information presented herein is for educational purposes only, and is a general discussion of certain Social Security provisions, based on our understanding of Social Security rules at the time of publication. The rules governing Social Security are numerous and complex, and we strongly encourage you to contact the Social Security Administration for guidance on your specific situation. The information contained herein is not tax or legal advice, as D.A. Davidson does not provide tax or legal advice. Please consult with your tax and/or legal professional for guidance on your specific situation. For detailed information regarding Social Security benefits, see www.ssa.gov.