Welcome back to the Functional Retirement Podcast, where we get technical about your wealth, philosophical about your purpose, and inspirational on your fitness. In this episode, we will be discussing spousal benefits and the rules that spouses have when it comes to taking their benefits. Understanding these strategies can potentially save you thousands of dollars in retirement.
In this scenario, both spouses are living and are considering their Social Security options. The goal is to maximize benefits by taking the spousal benefit early and then switching to their own benefit later when it has accumulated and grown. However, it is important to note that this strategy is no longer available as it has been outlawed by the Social Security Administration since 2015.
In this scenario, one spouse takes their own benefit early while the other spouse waits to maximize their benefit. The spouse with the smaller benefit starts taking their own benefit at age 62, while the other spouse delays their benefit until a later age, such as 70.
By taking their own benefit early, the spouse with the smaller benefit can receive monthly checks while their spouse's benefit continues to grow in the background. Once the higher-earning spouse files for their benefit, the other spouse can then claim the spousal add-on, which can potentially increase their benefit to 50% of the higher-earning spouse's benefit. This strategy allows both spouses to maximize their Social Security benefits.
It is important to understand the difference between your own benefit and the spousal benefit. Your benefit is based on your own earnings history and is calculated when you choose to take Social Security. The spousal benefit, on the other hand, is available if your spouse has accumulated a larger benefit on their own work history. You can potentially receive 50% of their benefit if it is larger than your own benefit.
To determine which benefit is larger, you can create an online profile on the Social Security Administration's website (ssa.gov) and view your calculation and benefits.
Age plays a crucial role in determining when to take your Social Security benefits. Evaluating your expected lifespan, health, and family history can help you make an informed decision. The break-even point for Social Security benefits is typically around 82 to 84 years old, which is the expected lifespan at the moment. If you expect to live longer than that, it may be beneficial to wait and maximize your benefits. However, if you anticipate a shorter lifespan, taking your benefits early may be a better option.
To be eligible for the spousal benefit, your spouse must have already filed for their own benefits. Without your spouse's filing, you will not be entitled to the spousal benefit. It is crucial to coordinate with your spouse and ensure that they have filed before considering the spousal benefit strategy.
Prior to 2015, there was a strategy called "file and suspend" where individuals could take the spousal benefit early, suspend their own benefit, and let it grow in the background. However, this strategy has been outlawed by the Social Security Administration since 2015. The Bipartisan Budget Act of 2015 introduced the deemed filing rule, which requires individuals to file for both their retirement and spousal benefits at the same time.
Maximizing Social Security benefits is a complex process that requires careful consideration of various factors. It is recommended to seek professional guidance from a financial planner who specializes in retirement planning. They can provide a comprehensive evaluation of your financial situation, including investments, income distribution strategies, insurance, estate planning, and goal maximization in retirement.
If you have any further questions or would like to explore your Social Security options, you can reach out to ProPath Financial for personalized assistance.
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