Maximizing Social Security Retirement Benefits for Married Baby Boomers – Part 3 of 4
Social Security election is often viewed as having to make one of three choices: to take early at a decreased benefit rate, take at the “full retirement age,” or take late at a larger benefit level – sort of each man or woman for himself or herself. Although that is true on one level, it ignores the fact that more often than not, women live longer than men, and with a married couple, the surviving spouse is most likely going to be the wife who may live for many years after the husband dies. Dual income and formerly dual income families have more election choices than each spouse for himself or herself.
There are a few defined terms with which the reader needs to be familiar. Primary Insurance Amount (PIA) is the benefit (before rounding down to the next lower whole dollar) a person would receive if electing to begin receiving retirement benefits at Full Retirement Age (FRA, defined below), as calculated when the worker reaches age 62. The benefit a worker would receive if electing to begin receiving benefits at FRA is the PIA plus any cost-of-living increases between age 62 and the FRA. An individual worker’s PIA is calculated from the average of the worker’s 35 highest income years, with each past year adjusted for inflation.
In order to be eligible for Social Security benefits based on a worker’s own earning record, the worker must have at least 40 credits, meaning 40 quarter years for which Social Security withholding was withheld.
Optimizing the Social Security retirement benefits that a dual-income family or former dual-income family (due to being divorced or widowed) can obtain depends on various factors your attorney can explain in detail. Full Retirement Age (FRA) depends on when the worker was born.
A worker with FRA of 66 may elect to receive benefits based on their own work record as early as age 62. However, the benefit is reduced depending on retirement age. Adding insult to injury, if the worker continues earning wages while receiving Social Security benefits based on their own work record, the Social Security benefits are decreased based on the ongoing earnings. A worker’s benefit based on their own work record can increase above their PIA if receipt of benefits is delayed to as late as age 70. For a worker who is likely to live a long time and has other assets and income to live on while waiting, delaying the start of receiving benefits may be very profitable. If the worker continues earning wages after their FRA, there is NO decrease in the benefit; the worker gets the full benefit.
When a two-worker couple elects to start receiving Social Security benefits based on their own work records, optional monthly choices over nine years for each worker result in 11,664 possible age combinations. There are four more ways to maximize the benefits for a couple, which a qualified attorney can explain in detail.
As should be evident, the maximum family benefit is not an individual calculation, nor even two individual calculations. It is a lifetime choice, and electing early Social Security benefits based on your own work record is betting against you living a long life.
We will discuss the last “leg” of the stool, Taxation, in Part 4 of this series.