Social Security Strategy: Restricted Application for Spousal Benefit

By: Jeff Rosengarten

06/14/2019

Are you between the age of 65 ½ and 70? If so, you may be leaving free money on the table from Social Security.

Those who will be age 66 or older by the end of 2019 may be able to claim what is called a “spousal benefit” at age 66 and wait to take their own increased benefit until age 70.

To take advantage of this strategy, you must be over age 66 and your spouse must currently be receiving his or her benefit. If this applies to you file a “restricted application” which allows you to receive one-half of your spouse’s Full Retirement Age (FRA) benefit.

This strategy works best if the lower earner claims their benefit, then the higher earner files a restricted application to receive spousal benefits for a few years and then switches to their own benefit at age 70. In general, we recommend the higher earning spouse delay claiming their own benefit as long as possible to age 70. Each year you delay benefits past age 66, you receive an 8% per year increase in your benefit.

For example, if your spouse is the lower earner and receiving their FRA benefit of $1,000 per month, you would be eligible for a spousal benefit of $500 per month. You could claim the spousal benefit of $500 per month for four years (ages 66 to 70) for a total of $24,000. At age 70, you would switch to your own larger benefit.

Claiming the spousal benefit early at age 66 does not affect your higher benefit so you can keep your increased age 70 benefit intact and still receive some benefits early. The increased benefit will also transfer 100% to your spouse if you pass away first and will continue for your spouse’s lifetime.

If you are divorced and currently unmarried, you can also use this strategy to claim spousal benefits on your ex-spouse’s record at your age 66 and delay taking your own benefit until age 70. You must have been married at least 10 years and divorced for at least two years. Unlike a married couple, your ex-spouse does not have to be currently receiving their own benefit for the spousal benefit to be available, but your ex-spouse must be age 62 or older.

Delaying taking Social Security acts as a hedge against three major risks to your investment portfolio; high inflation, poor markets, and longevity risk (the risk that you outlive your money). Social Security provides Cost of Living Adjustments to keep up with inflation and your benefit does not depend on market performance like the rest of your investment portfolio.

The future of Social Security is largely unknown and out of your control, but deciding how and when to claim your benefit is your choice and will be one of the most important decisions many retirees face. Social Security has no shortage of rules, which means there are plenty of tips and strategies and an equal number of pitfalls. Make sure to do your homework and talk to your advisor to figure out what is best for your situation.