Finance

For Richer or Poorer

Understanding the financial benefit of marriage

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Marriage has its benefits – especially when it comes to Social Security. But you have to be a bit patient.

Most people want to maximize the amount of money they receive from Social Security. For some people, with shortened life expectancies or poor health, that can mean claiming reduced benefits as early as age 62. For others, with expected longevity and financial resources, waiting until the latest eligible age of 70 can provide the highest monthly benefit.

However there is one claiming strategy – available only to married couples – that can provide for an even greater benefit than individuals can receive alone. Informally it is known as the “Claim Now, Claim More Later” strategy. Formally it is titled “Filing a Restricted Spousal Claim.” In one study published in the Journal of Financial Planning, 83% of couples sampled could benefit from this strategy.

Here is how the strategy works: one spouse/partner in a marriage files a restricted spousal claim at full retirement age for half of the other spouse’s benefit. At a later date (up to age 70), the original spouse switches to his own, higher benefit. The strategy can produce a double gain. If the original spouse had simply waited to take his/her own benefit at age 70, he would have missed out, from ages 66 to 70, on benefits derived from the partner’s earning’s record. In addition, by delaying his benefit beyond full retirement age, the original spouse can see his benefit grow by 8% a year until age 70.

A quick example: Jane, age 66, has a calculated benefit of $2,000 a month. Her spouse, Fran, also 66, is eligible for $2,400 a month. Jane is retired and takes her benefit at 66. Fran is now eligible to file a restricted spousal claim for $1,000 (half of Jane’s). If Fran waits until age 70 to switch to his own benefit, Fran receives, exclusive of any additional potential earning’s credits, approximately $3,168, a 32% increase.

This strategy tends to work best with two working spouses, where the couples’ earnings records are fairly equal. In order to maximize the survivor’s benefit, the higher wage earner makes a claim on the spouse’s benefit and later takes his/her own, regardless of the gender.

There are a few caveats:
* You must be married (the Social Security Administration has agreed to recognize same-sex marriages for purposes of determining benefits).

* You can’t file a restricted benefit on your spouse until he/she files for benefits or claims and suspends benefits.

* You can’t file a restricted claim until after you reach full retirement age.

* Both spouses can’t file for a restricted benefit.

This strategy currently costs the Social Security Administration, by some estimates, close to $10 billion annually. With Social Security already in trouble financially, the restricted benefit opportunity could be placed on the agenda for entitlement reform. But for now, “Claim Now, Claim More Later” allows you to build up a greater benefit in the future while not foregoing income entirely in the present.

Deciding how to take Social Security benefits is a big decision. If you can be patient until full retirement age, you may be able to use your marital status to increase the total amount of benefits you receive.

Betsey Purinton, CFP® is Managing Director and Chief Investment Officer at StrategicPoint Investment Advisors. Email Betsey.