When Is The Best Time To File for Social Security Benefits?
The answer to this question is what I refer to as “My CPA’s Answer.” He always tells me, “It depends” when I ask him a tax question. Social Security filing strategies are much more complex than they appear on the surface. The best way to find out the solution that is best for you is to look at your own financial details through the lens of financial planning software in addition to tax planning software.
Should You File For Social Security Benefits Early, At Full Retirement Age, Or Late?
Nearly everyone is eligible to receive Social Security benefits beginning in the month that they turn age 62, primarily because 96% of Americans are covered by Social Security. Usually, it is not a good idea to take your benefit at age 62 because your benefit will be permanently reduced by 30% as compared to your Full Retirement Amount (FRA). Depending on the year one was born, FRA ranges from ages 65 to 67. If you’re unsure of yours, Social Security has a Retirement Age Calculator to help you determine your Full Retirement Age.
When it may be a good time to file before you turn your full retirement age:
- You need the funds to live because you no longer have income and do not have other assets to support you.
- There is a likely chance that you will not live past your mid-70s, the typical age where one would “break even” with their benefits. That’s the point at which the total/cumulative amount of Social Security benefits received is the same, regardless of whether you file for benefits early (at a reduced monthly payout) or wait until your full retirement age or later (at a higher monthly payout).
When it may not be a good time to file before your full retirement age:
- You are still working. The government withholds benefits if you earn more than the annual threshold of $21,240.
- There is a good reason to expect a long life, as cost-of-living adjustments applied to the higher FRA amount magnifies over the years. Under this scenario, you may want to wait to file until age 70, because that will give you the highest monthly payout.
- Even if you don’t expect to have a long life yourself, if you are married and file for Social Security early, when you pass away, your spouse will receive lower survivor benefits than if you had waited until your FRA or later to file.
Before you file for benefits, the best course of action is to consider all of the available assets for funding retirement, your expected health, your marital status and your tax situation.
How Do Spousal Social Security Benefits Work?
Social Security laws are very generous to spouses. Historically, the woman stayed home to raise children and when they did work, they worked in lower paying jobs than their husbands. Given this history and for simplicity’s sake, I will refer to the person eligible for their own lower or no benefit as the woman. However, in today’s world women are often the higher earner in the household, so the information below is the same if applied to a lower earning husband.
The Social Security laws are generous to women because even if they have never worked, they can receive Social Security benefits based on her current husband’s, ex-husband’s, or deceased husband’s work record. Spousal benefits are generally one-half of the working spouse’s benefit.
Basic rules for a spouse to collect spousal benefits:
- The couple must be legally married under their own state’s definition of marriage.
- The couple must be married for at least one year.
- The worker spouse must have claimed his own benefit.
- The spouse claiming spousal benefits must be at least 62 years old.
- The spousal benefit must exceed one’s own Social Security benefit. When the spouse applied for social security benefits, the Social Security Administration will first look at her own earnings record and benefit. Then to see if she is entitled to a spousal benefit, they will subtract her own earned benefit from one-half of her husband’s benefit. If the number is positive, the “excess” amount is added to her retirement benefit.
- Both spouses cannot claim a spousal benefit at the same time.
- Spousal benefits stop upon the termination of the marriage. If the marriage has terminated due to divorce, the spouse may switch to divorced-spouse benefits if the couple was married for at least 10 years. If the marriage ends because the higher wage earner has died, the spouse switches to survivor benefit, the spousal benefit stops, and she begins receiving the higher benefit of her husband.
What are some claiming strategies for married couples? These are rules of thumb, the optimal answer can only be found through using financial planning software.
- The higher earning spouse waits to file until age 70 so that whichever spouse lives the longest, they will be the beneficiary of the highest monthly benefit available to them.
- The lower earning spouse files early at age 62 for their own benefit. There is a caution here since the spouse benefit is “added to” her own benefit. The addition will be added to the lower benefit from filing early. If longevity is expected for both spouses, this is generally not the best strategy.
- If there are two higher earning spouses, then it may be best if both spouses wait to file until age 70.
Social Security Benefits for Divorcees
Spousal benefits may also be available to you if you are divorced, if the following conditions apply:
- The marriage lasted at least 10 years.
- The person claiming spousal benefits is currently unmarried.
- The ex-spouse is currently over the age of 62 and is eligible for benefits.
- The divorce was final over two years prior to the application, although the ex-spouse does not need to have filed for his own benefit in order for the divorced spouse to claim a spousal benefit.
- The divorced spouse’s own benefit must not be higher than the spousal benefit.
There are claiming strategies for divorced individuals as well:
- You can file as early as age 62, but you will receive a reduced benefit and if you are still working your earnings will be subject to the earnings test.
- If you were born before January 2, 1954, you may be able to file a restricted application for spousal benefits and receive those benefits until you file for your full benefit at age 70. This is true, but only VERY incrementally for the specific group of people at this point born in 1953. By January of 2024, anyone in this category will be 70.
Social Security Benefits for Widows and Widowers
There are also survivor benefits available to widows and widowers. If the worker spouse dies, the surviving spouse may receive benefits based on the working spouse’s record. If the worker dies after claiming Social Security and claimed at Full Retirement Age or later, the widow may receive his benefit amount as her own. Her own benefit, assuming it was lower, would stop. There are some basic rules for survivor benefits:
- The couple must have been married for at least nine months, except in the case of an accident.
- The survivor benefit will be equal to the deceased spouse’s benefit at the time of his death if the widow claims it at her FRA or later.
- The widow or widower may claim the survivor benefit as early as age 60, but the benefit will be reduced.
If you remarry before age 60, you are no longer eligible to receive survivor benefits. However, if you wait to get married after you turn 60 you retain the right to file for survivor benefits.
As you can see, spousal Social Security benefits, like all Social Security benefits, are much more complicated than they look on the surface!
To learn more about Social Security, check out the resources linked below, or schedule a call with us to get started on your own financial planning process.
Watch our video on How to Create Your SSA.gov Account >>
See Jennifer’s interview about Social Security on Virginia This Morning >>
Check out our Social Security Planning for Baby Boomers webinar >>
