When planning for retirement, one of the most significant financial decisions you will face is when to claim Social Security benefits. For many retirees, the decision is relatively straightforward: delaying the claim often results in larger monthly payments. After all, delaying benefits until you reach 70 can maximize your Social Security payout. However, there is one crucial exception to this general rule, and it revolves around claiming spousal benefits.
If you are eligible for spousal benefits and have reached your full retirement age (FRA), delaying your claim beyond this point is not only unnecessary—it could cost you valuable payments that you would otherwise receive. Below, we will explore why retirees should avoid waiting too long to claim their Social Security spousal benefits, and when it might make sense for the higher-earning spouse to delay their own claim.
Why Delaying Social Security Benefits Is Generally a Smart Move
For most retirees, delaying Social Security benefits beyond the age of 62 makes financial sense. If you begin claiming at 62, you will receive a reduced monthly benefit. However, waiting until you reach your full retirement age (FRA) or even continuing to delay your claim up to age 70 will result in a higher monthly payout.
The Social Security system was designed to offer equitable benefits regardless of when someone starts claiming. The formula used to calculate monthly payments attempts to equalize the total amount received by individuals who claim early versus those who wait. However, as lifespans have increased, and the cost of living rises, waiting to claim Social Security often results in a better lifetime income.
In fact, research indicates that 7 out of 10 retirees are financially better off waiting until at least full retirement age (67 for those born in 1960 or later) to claim Social Security. If they continue to delay, they can benefit from delayed retirement credits, which increase their benefit amount by 8% per year from FRA to age 70. This can add up to a 24% boost in their monthly payments. Clearly, for many retirees, waiting is a smart financial strategy.
However, when it comes to claiming spousal benefits, the rules are different.
The Problem with Delaying Spousal Benefits
If you’re planning to claim Social Security spousal benefits, it’s important to understand that delaying beyond your full retirement age (FRA) is not beneficial. Unlike other types of Social Security claims, spousal benefits do not increase beyond FRA.
Full retirement age (FRA) is the age at which you are eligible to receive 100% of your Social Security benefit based on your own work history, and it varies depending on your birth year. For those born in 1960 or later, FRA is 67. If you are seeking spousal benefits based on your spouse’s earnings record, your benefit will be 50% of your spouse’s primary insurance amount (PIA) at FRA. However, if you delay your claim until after FRA, you will still only receive the same 50% benefit. There is no additional increase, unlike the delayed retirement credits that apply to claims based on your own work history.
This situation is unique to spousal benefits. Those who claim Social Security based on their own earnings can benefit from delayed retirement credits. These credits increase their monthly benefit by 2/3 of 1% per month, totaling an 8% increase per year, which can significantly enhance their income during retirement. For example, someone with an FRA of 67 would see their benefit increase by 24% if they delay claiming until age 70.
However, spousal benefits don’t follow the same rules. If you are eligible to claim spousal benefits, you should not delay beyond FRA because you will not receive any additional increase in your benefit. Therefore, delaying beyond this point only results in lost payments.
When Should You Claim Spousal Benefits?
You can claim Social Security spousal benefits once you reach your full retirement age, provided your spouse has already filed for their own retirement benefits. If your spouse has not yet filed for their benefits, you will not be able to claim spousal benefits until they do so. This is an important consideration for couples when planning the timing of their Social Security claims.
The situation can get more complicated when there is a significant age gap between spouses. For example, if one spouse is a higher earner and chooses to delay their claim until age 70, the other spouse may not be able to claim spousal benefits until the higher earner actually starts collecting their own retirement benefits. This may create a delay in receiving spousal benefits, but there is a way to work around it.
The Strategy for Married Couples
For couples with a significant age gap, the spouse with the lower earnings might want to claim Social Security based on their own work history earlier, even if their benefits are lower. By doing so, they will have some Social Security income while waiting for the higher-earning spouse to file for their own retirement benefits. Once the higher earner begins claiming their Social Security, the lower-earning spouse can then switch to spousal benefits, if eligible.
This strategy ensures that both spouses maximize their total Social Security income over their lifetime. The spouse who claims earlier will receive a smaller monthly benefit, but it can still help bridge the gap until the higher-earning spouse claims their benefits. This approach also avoids the issue of leaving money on the table by waiting too long to claim spousal benefits.
Why Working with a Financial Advisor Is Important
Social Security rules are complex, and claiming strategies can vary depending on individual circumstances. Married couples especially may benefit from working with a financial advisor to determine the best time for both spouses to begin collecting Social Security.
A financial advisor can help you understand the rules surrounding Social Security claims, including the impact of claiming spousal benefits and the advantages of delaying benefits for the higher-earning spouse. An advisor can also help you evaluate other retirement income sources and ensure that your claiming strategy aligns with your overall retirement goals.
Conclusion
When it comes to claiming Social Security benefits, timing is everything. For most retirees, delaying their claim can result in a larger monthly benefit. However, if you are planning to claim spousal benefits, you should not delay your claim beyond full retirement age, as there is no additional benefit for doing so. Instead, claim your spousal benefits as soon as you reach FRA to avoid losing valuable payments.
If you are unsure about the best strategy for your Social Security claim, consider consulting with a financial advisor who can help you navigate the complexities of the system and ensure that you maximize your benefits. Social Security plays a crucial role in retirement planning, and understanding when to claim is essential for securing your financial future.
Disclaimer – Our editorial team has thoroughly fact-checked this article to ensure its accuracy and eliminate any potential misinformation. We are dedicated to upholding the highest standards of integrity in our content.
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