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This week’s question comes from Chuck:
“My wife will be 63 this year, and I will be 66. I don’t plan on taking Social Security until I retire at age 70. Can my wife take her Social Security now and then switch to spousal benefits when I retire? She has a small pension from the school district that she gets now of $160 a month. Her Social Security will be minimal — approximately $350 a month. Mine will probably be at the maximum. We want to be sure and have the right strategy. What do you advise?”
Don’t turn down ‘free’ money
Chuck, your situation raises a number of complications. It provides a good example of how many people can benefit from inexpensive professional help when trying to reach the best Social Security claiming decision.
First, since you were born prior to 1954, you can take advantage of the restricted application claiming option. This option allows you to claim spousal benefits on your wife’s record while letting your own retirement benefits grow until 70, or whenever you choose to claim them. It will be necessary for your wife to claim her retirement benefits in order for you to use this option.
In your case, the spousal benefit will not amount to a lot since your wife’s benefit is minimal. But it’s free money, so no reason to leave it on the table. I will return to this matter below.
Second, your wife has a pension from employment where she did not pay Social Security taxes. So, her retirement benefit will be reduced due to the Windfall Elimination Provision (WEP). The WEP will not reduce her Social Security retirement benefit by more than one-half of her school pension, which is about $160. So, the WEP penalty will be about $80 a month at her full retirement age (FRA).
Third, the Government Pension Offset (GPO) will reduce her spousal benefit, which she can claim once you claim your own retirement benefit. Again, since her school pension is small, the GPO will have a minimal effect. The GPO reduces a spousal (or a widow’s) benefit by $2 for every $3 of private pension (where no Social Security taxes were paid). In her case, the spousal benefit will be reduced by about $107 at her FRA.
In order to establish your optimal claiming strategy, I ran your numbers through my company’s software. Here is what I found:
For normal life expectancies for both of you, your wife should claim her retirement benefits by the time you reach your FRA of 66. Then, you can use a restricted application to claim spousal benefits only. (If you have already turned 66, you can request retroactive payments back to your birth month, or for six months, whichever is shorter.)
Your spousal benefit will get you about $1,600 a year. While that is not a lot of money, there is no reason to walk away from it. As I said before, it’s free money.
Finally, you should claim your retirement benefits at 70. Your wife can then pick up spousal benefits. At this point, your benefit will be about $3,700 a month. Your wife’s combined benefit of retirement plus spousal supplement will be about $1,240 a month. That’s a nice addition to your other retirement income.
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The questions I’m likeliest to answer are those that will interest other readers. So, it’s better not to ask for super-specific advice that applies only to you.
I hold a doctorate in economics from the University of Wisconsin and taught economics at the University of Delaware for many years. In 2009, I co-founded SocialSecurityChoices.com, an internet company that provides advice on Social Security claiming decisions. You can learn more about that by clicking here.
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Disclaimer: We strive to provide accurate information with regard to the subject matter covered. It is offered with the understanding that we are not offering legal, accounting, investment or other professional advice or services, and that the SSA alone makes all final determinations on your eligibility for benefits and the benefit amounts. Our advice on claiming strategies does not comprise a comprehensive financial plan. You should consult with your financial adviser regarding your individual situation.
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