The age at which you start
collecting Social Security benefits can have a big
impact on lifetime income. In some cases, you can make
the most of your benefits by changing the start date
even after you filed.
Two little-publicized
tactics can help you stretch your benefits, especially
if you're married.
Put benefits on ice.
If a spouse -- let's say the wife -- earned less than
half of what her husband earned, she can collect a
spousal benefit, which is 50% of his benefit (her
benefit will be reduced if she collects before her full
retirement age). Once her husband dies, she can collect
a survivor benefit, which is 100% of his benefit.
If you want your spouse to
collect the biggest survivor benefit possible, you
should delay collecting your own benefit. For each year
you delay beyond your normal retirement age, you'll get
an 8% boost in benefits. If your normal retirement age
is 66 and you wait until 70, your wife will receive 32%
more in survivor benefits when you die, plus any
accumulated cost-of-living adjustments (COLAs).
But there's a catch. Your
wife can't apply for spousal benefits until you file for
your own benefits. James Mahaney, vice president of
Prudential Financial, has this suggestion: You can file
for benefits at full retirement age and then immediately
suspend them. Once you file, your wife can apply for
spousal benefits; you can file again for yours years
later.
Mahaney shows how delaying
can boost your lifetime benefit and the survivor
benefit. A primary breadwinner who was due $12,000 a
year at age 66 would get $13,506 at age 70, assuming a
yearly 3% COLA. The same person who filed at 66 and then
suspended benefits would get $17,828 at 70, which
includes delayed credits and four years of COLAs.
You can only take a
"voluntary suspension" when you reach your full
retirement age. You can ask for a suspension when you
first apply for benefits or after you start receiving
them. The Social Security Administration will take a
request by phone or in writing.
Return your benefits.
If you claim your Social Security benefits early, at age
62, your benefits will be reduced by 25% forever. At
some point, you may decide that this was a big mistake.
If you think you'll live a long time, why take a
permanent cut? Also, if you're the primary breadwinner,
your spouse's survivor benefit will be lower as well.
The good news is that
you're not locked into that early decision. You can file
for a "withdrawal of application" at any time before you
turn 70. "The reason this provision exists is for people
who did not look ahead," says Henry Hebeler, author of
Getting Started in a Financially Secure Retirement
(John Wiley & Sons, $20).
To undo your early
decision, you must return all of the money that Social
Security paid you over the years -- in a lump sum. If
your wife is claiming spousal benefits, she must return
her accumulated benefits as well. But you won't have to
pay any interest on the benefits you collected.
Consider these numbers
calculated by Hebeler, who runs AnalyzeNow.com, a
retirement-planning Web site. If you receive a yearly
benefit of $12,000 at 62, your benefits will total
$63,710 by age 66 assuming a 3% annual COLA. If you set
aside the money in an account returning 5% after taxes,
you'll accumulate $71,960 -- or a tidy $8,250 profit.
That means at 66 you can buy higher lifetime benefits by
withdrawing your claim -- and you get to keep the extra
$8,250.
But it's not a good idea
to file early for benefits simply to earn some easy
cash. If you die before you withdraw your claim, your
spouse's survivor benefit will be stuck at the lower
benefit, Hebeler warns. And you'll need to recoup the
taxes that you may have paid on the benefits when you
received them -- and that can be complicated.
You'll need to file a
Request for Withdrawal of Application (SSA Form
521). You can find the form at
www.ssa.gov or call
800-772-1213.
The Social Security Administration will let you know how
much you must repay.
By Susan B. Garland
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