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The twists and turns of Social Security

Social Security is complicated and there are many factors that have to be accounted for, such as your age, income, marital status, health and life expectancy. According to SSA.gov, the average American retiree’s Social Security benefits account for 40% of their retirement income – meaning it is quite important to file thoughtfully. 

There are three main types of social security benefits: benefits for workers, spouses, and survivors.

1. Benefits for workers – You must have worked and contributed to the system for at least 40 quarters to be entitled to your Primary Insurance Amount (PIA) at full retirement age (FRA), somewhere between 66 and 67, depending on the year you were born. You can file as early as 62, but be warned, you’ll be locking in 25% lower payments for life if you do. If you file after full retirement age, then you begin to accrue credits. These credits result in an 8% raise in benefits per year you delay up to age 70.

2. Benefits for spouses – Spousal benefits offer your spouse steady income based on your work record. Your spouse can start collecting at age 62, but you must have filed for benefits first. Unlike the worker benefit, spousal benefits do not earn delay credits, but they can incur reductions if you take spousal benefits before your own FRA.

 3. Benefits for survivors – Couples who want to ensure the surviving spouse gets the largest benefit possible after a loss should pay careful attention to the rules that govern the survivor benefits. In this case, delay Social Security increases your own benefit as well as the lifetime benefit for your widow or widower. The survivor’s benefit can begin as early as age 60.

Your loved one will revie whichever is higher: their current benefit or your current benefit. Since the lower benefit will drop off in favor of the higher one, it may not always make sense for a lower earner to delay Social Security. 

If you are single, timing is everything when it comes to filing for Social Security. Delaying earns you an extra 8% per year you wait past your full retirement age, up to age 70, plus any cost of living adjustments. 

Married couples need to do a little more planning in order to maximize their Social Security benefits. Here are a few common strategies.

1. Main breadwinner delays benefits – If the higher earner delays filing, not only will that person get an increased benefit for every year they wait, but their spouse will also, should they outlive the breadwinner. Many people focus on their individual benefit without considering the survivor benefit. If you take it into account in your calculations, you may find it makes more sense for the lower earner to start benefits as soon as you need income, while the higher earner racks up delayed retirement credits. 

2. Maximize spousal benefit – This strategy’s approach is to delay the higher earner’s benefit. Since spousal benefits don’t benefit from delay credits, someone may wish to start their benefit at FRA, allowing their spouse to start their spousal benefit.

There is one twist here, however. Those born before January 1, 1954 get a choice between filing for their own benefits or spousal benefits when they reach FRA. Everyone else will be deemed to be applying for both and will automatically receive the higher of the two benefits.

Much like Social Security, life has its own twists and turn. Should you find your circumstances changing there are strategies that can help you avoid short term financial hardship and solidify long-term retirement income through the transition. 

One thing you can do is file on your ex’s record. It is a similar process to filing for spousal benefits, except you must have been married for at least 10 years and remain unmarried while you collect on your ex’s record. If you have been divorced for two years, your ex doesn’t even have to file for benefits for you to qualify. They merely must be eligible (at least 62) for benefits. Plus, your ex-spousal benefits in no way affect your ex’s benefits or any benefits that would be owed to a future spouse. You can even collect if your ex remarries. 

For widows and widowers under age 60 who have worked for at least 10 years, you have choices to make between your survivor and worker benefits. Typically, you’d claim the higher of the two when you initially file, but in some cases, you can integrate both.

Widows and widowers are among the few who can claim benefits before age 62, so you have the option to start your survivor benefit at the earliest age possible – age 60 – and switch to your own worker benefit when you turn 70, once it will reach its maximum thanks to the delayed retirement credits and cost of living adjustments. 

You have options to help you and/or your spouse maximize your benefits. Remember, there is no “best” strategy for every person out there. The right strategy will vary greatly depending on the many factors that play into Social Security.

You can find out your expected Primary Insurance Amount (PIA) by signing up for a Social Security account and monitoring your benefit at ssa.gov. You can run what-if scenarios with your advisor and map out the variety of options you have. 


Sources: Prudential; ssa.gov

Individual cases will vary. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Prior to making any investment decision, you should consult with your financial advisor about your individual situation.