By SCOTT T. MARSHALL, CPA, CFP®
About two years ago, I had a financial planning review meeting with clients who were married. They both had long work histories with good incomes (i.e. they had more than paid their fair share into the social security system). He was 66 years old, continuing to work, and had just filed for his full social security retirement benefit. She was 64 years old, recently retired, and was biting at the bullet (to say the least) to file early for her benefit. It was a no-brainer, right? Wrong.
A few important factors led me to advise them to delay her filing for her retirement benefit:
- Longevity—Both of her parents lived well into their 80’s. She was in great health for her age. Given those factors, she was projected to live into her 90’s.
- Need—Simply put, they did not need the additional income to support their lifestyle due to his continuing to work and other sources of retirement income. But yes, she wanted that income! (Needs vs. Wants may be our next article!)
- Maximization—By them both waiting until full retirement age to file for benefit, they opened up the doors to maximize their retirement benefit as a married couple. Specifically for them, she could file a “restricted application for spousal benefits,” receive 50% of her husband’s retirement benefit beginning at age 66, and allow her personal retirement benefit to grow at 8% per year until age 70 (guaranteed with no stock market risk, I might add).
Fast forward to last week. It had now been two years since we first discussed this planning strategy. “Finally!” she thought. “Time to be rewarded for being patient!” They went to their local social security office together to implement this maximization strategy. I was “on call” in case they had any issues.
Now leading up to this meeting, I forewarned them that the social security agent would likely tell them that this strategy is not allowed and that she must receive the highest benefit available to her at the time, which would be her personal retirement benefit. I even emailed them an article explaining how this works, and I gave them the language to use so there would be no confusion.
Back to the story, my phone rang about 30 minutes after their appointment time. I thought, “Wow, that was quick and easy!” Yes, it was quick, but not so easy. The social security agent sent them packing quickly, saying with the utmost confidence that this strategy was not allowed and that she must receive the highest benefit available to her at the time. They were already in the car heading home! I said, “Wait! Turn around, go back to the office, and ask for a supervisor.” There was a dead silence. And the husband said, “Really?” I said, “Really!”
So they did and happened to meet again with the same agent. The agent politely sought out a supervisor to appease their request. He returned, saying, “Well, I have good news and bad news. Which do you want first?” The husband said, “Well, either is fine. Just tell us both.” The agent said, “The good news is that she can use this strategy. The bad news is that I was wrong.”
She’ll receive her first spousal benefit check in August, and her personal retirement benefit will continue to grow at 8% per year until age 70.
So how do the numbers add up in their situation? Without adjusting for any future cost of living increases, she’ll receive over $63,000 of spousal benefits in just 4 years, and her personal retirement benefit beginning at age 70 will be over $600/month higher than it would have been at 66.
Well that’s a good ending to this story thankfully. What does this mean for you? A couple of things:
- If at all possible, wait until at least full retirement age to file for your retirement benefit. By filing early, you greatly reduce the maximization opportunities available to you. Actuaries have estimated that in some situations, over $300,000 of additional benefits could be received over a lifetime by properly implementing these strategies.
- Everyone’s situation is unique. There is not one “silver bullet” that applies to all situations. Many factors must be considered, including age, health, goals, needs, etc.
Before you file for benefits, seek counsel from a competent professional with expertise in social security maximization strategies. Our team at Rivertree Financial Planning would be glad to help assist you in this area.
Scott T. Marshall, CPA, CFP ®is the Founder and Presient of Rivertree Financial Planning. A West Point native, graduate of the University of Mississippi. He and wife Helen reside in Jackson with their three children. They are active members at Redeemer Church, PCA where Scott serves as a Deacon and on the Men’s Ministry Team.