Getting paid to wait - the big Social Security secret
The Secret Social Security Spousal Benefit
by Brian Doherty
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Social Security benefits increase every year that they are delayed from age 62 to age 70. In other words, the longer you wait to claim your benefits, the bigger your Social Security check. Despite the fact that this basic idea is critical to making a good claiming decision, a recent survey found that about 50% of people were unaware of it. With this in mind, it's fair to assume that Social Security's lesser known concepts are often overlooked. In particular, one that almost no one knows about (even financial advisors) is a concept that I call Getting Paid to Wait(SM). Utilizing this strategy can have an incredibly powerful impact on your retirement lifestyle and, if married, your spouse's too.
Editor's note: Due to the signing of the Bipartisan Act of 2015 on November 2,2015, Social Security spousal benefits will no longer be available to those turning 62 after January 1, 2016.
Most financial experts advise to delay claiming your Social Security benefits as long as possible, ideally until age 70. Delaying until age 70 will lock in the biggest benefit possible for the rest of your life. However, did you know that Social Security will actually pay you while you wait to age 70? That's right, while you are delaying and waiting to claim your maximum Social Security benefit, you can still receive income from Social Security. How much easier would it be to wait to age 70 if you were earning Social Security income during the delay period?
Married couples, divorced spouses and widows/widowed spouses can employ Social Security claiming strategies that could pay them tens of thousands, even hundreds of thousands of dollars, of Social Security income while they delay claiming their benefits until age 70. This is income that you earn between age 62 to age 70. After age 70, you'll stand to gain even more because, at that point, you'll have locked in your maximum Social Security benefit.
The key is to use and time correctly the claiming of the Spousal Benefit. Most people are unaware of what the Spousal Benefit is or that it even exists. Even many experienced financial professionals have never heard of it! From the Social Security Administration's website, "The spousal benefit can be as much as half of the worker's 'primary insurance amount,' depending on the spouse's age at retirement."
In other words, the Spousal Benefit entitles one spouse to receive up to 50% of the other spouse's Work History Benefit at full retirement age (The Work History Benefit is the amount of your monthly Social Security check, which is based on your salary and how much you pay into the system). I call this a "Married Couples Secret Weapon," but it can also work for those who are divorced. The best part is that, if done correctly, you can collect the Spousal Benefit without having any negative impact on the size of your maximized benefit at age 70.
There are multiple ways to effectively use this strategy so that you earn Social Security income while delaying. I cover each of the strategies clearly in my new book Getting Paid to Wait and am also creating a Paid to Wait Calculator, which will provide the most profitable way to delay based on your unique situation. However, to give you an example of how this works, I've pulled together the following chart.
This chart shows the Social Security claiming strategy for a married couple, Lee and Cris. Lee and Cris are the same age. As you see in the chart, Lee claims her Work History Benefit at age 62 of $845 per month. Cris doesn't claim any benefit at age 62, so there is a $0 in Column C for Cris's monthly income. From age 62 to age 65, Cris and Lee receive only Lee's benefit, which starts out at $845 per month and $10,140 for the year. Their income increases every year because of an assumed annual COLA (cost of living adjustment) increase of 3%. At age 66, Cris claims and restricts his benefit to only a Spousal Benefit and starts to receive a Social Security check of $633 per month. Their Combined Monthly Income increases to $1,584 and their Combined Annual Income increases to $19,008.
Even though Cris is receiving some Social Security income in the form of a Spousal Benefit, he continues to delay claiming his own Work History Benefit and receives Delayed Retirement Credits. These Delayed Retirement Credits will increase the amount of his unclaimed Work History Benefit by 8% for every year that he delays. You can see the impact this has when, at age 70, Cris switches from the Spousal Benefit to his maxed-out Work History Benefit of $2,508 per month.
To summarize, Cris and Lee are claiming benefits at three different ages: 62, 66 and 70 (see the rectangles on the chart). At age 62, Lee claims her Work History Benefit. At age 66, Cris claims a Spousal Benefit. Then, at age 70, Cris switches from the Spousal Benefit to his fully maxed-out Work History Benefit. Lee and Cris's combined annual Social Security income jumps to $42,936. Most impressively, while Cris delayed claiming his Work History Benefit until age 70, they were able to collect a total of $121,884! This is the amount of money that they were "Paid to Wait."
There are many other amazing aspects to consider with this plan. For instance, by having the married spouse with the bigger benefit delay until age 70, they will also lock in the biggest Survivor Benefit possible. With a married couple, one spouse usually dies before the other spouse. After the first spouse dies, the surviving spouse will only receive one check from Social Security. Luckily, they can continue to receive the bigger of the two checks. That bigger check is the Survivor Benefit. Making the Survivor Benefit check as big as possible will reduce the probability that the surviving spouse will struggle financially after the first spouse dies. There's more too! But, unfortunately, it is too much to discuss in just one article.
In the end, most of the financial experts are right! People should delay claiming their Social Security benefits as long as possible, ideally until age 70. But delaying until age 70 does not mean you have to wait until age 70 to receive income, many times a substantial amount of income, from Social Security. The Getting Paid to Wait strategies make it easier to do that because while you are waiting until age 70 to claim your benefits, you could receive tens of thousands and even hundreds of thousands of dollars of Social Security income. Believe it or not, you can get paid to wait!
Brian Doherty is a Social Security speaker, consultant and author of the new book Getting Paid to Wait: Bigger Social Security Benefits - The Simple and Easy Way (Acanthus Publishing, 2015). For more information, visit www.GettingPaidToWait.com.
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