Photo (cc) by bravenewtraveler

When a door closes, a window opens, they say.

One door that closed this year was a (perfectly legal) option that allowed married couples to boost their lifetime benefits from Social Security. That option, called “file and suspend,” was eliminated by Congress earlier this year in an effort to close loopholes in the program.

The open window

Congress did, however, leave a window open, at least for eligible couples, to squeeze all they can from Social Security. That option, called “restricted application,” allows one spouse’s benefits to grow while the couple draw some Social Security payments but not as much as they’ll eventually be entitled to. The goal: super-sized monthly payments after the waiting is over.

The money gained is well worth the effort, says Russ Settle, founding partner of Social Security Choices, which sells $40 custom analyses for couples that show them the financial consequences of claiming their benefits at a range of ages.

Settle says his clients often are surprised to learn that an option for super-sizing their benefits still exists for couples. Those who can use it stand to gain up to tens of thousands more dollars in lifetime benefits from Social Security than they’d receive otherwise.

How it works

Restricted application lets a couple take maximum advantage of the fact that Social Security benefits grow while they are left untouched. Details vary, depending on your ages and the size of your Social Security accounts. Here’s a hypothetical example:

One spouse collects. One spouse — let’s call her “Michelle” — starts collecting benefits at age 62, the youngest age possible for claiming Social Security.

The other claims a “spousal benefit.” Michelle’s husband — we’ll call him Tim — age 66, files a claim for “spousal benefits” (described in detail by Social Security here and here). Unlike an individual worker’s benefit, based on your earnings, spousal benefits are based on your spouse’s earnings. Spousal benefit amounts can be up to half of your husband’s or wife’s benefit, depending on your ages when you make the claim.

The catch. Although you can make a claim for spousal benefits as early as 62, the restricted application option requires the person claiming spousal benefits to have reached “full retirement age.” Tim’s full retirement age is 66, so he’s good to go. (Full retirement age is the age at which when you can get all the Social Security benefits you are entitled to. Claim earlier and your monthly benefit checks are discounted. Learn your full retirement age in this Social Security article.)

The game plan. The plan is to accept a smaller payoff from Social Security now by letting one spouse’s benefits grow, locking in a much larger total monthly benefit later. The restricted application option uses a two-part strategy.

Smaller benefits today, more money tomorrow

Part 1: Today. Tim was the bigger wage earner, and his Social Security benefits are greater. By claiming spousal benefits based on Michelle’s smaller wage record, the couple let Tim’s Social Security account keep growing (read “Take the carrot,” below, to learn how that works). Meantime, Michelle and Tim get to enjoy some Social Security payments — from Michelle’s claim at age 62 plus the spousal benefit for Tim. These payments are smaller than if they had both claimed their entire allowable benefits right now. But they’ll get a much-bigger payoff in a few years.

Tim and Michelle’s approach — claiming benefits first on the account of the spouse who earned less — may not always be the best tactic. “It depends on age differences, benefit levels and other objectives,” Settle says. That’s why a service like Settle’s may be useful to evaluate the options.

The Wall Street Journal tested five services that help pre-retirees choose how and when to claim benefits, including two free online calculators, T.Rowe Price’s FuturePath and AARP’s Social Security Benefits Calculator. You also can see what you can learn by looking up your own numbers: For estimates of each spouse’s future benefits, sign up for free MySocialSecurity accounts.

Part 2: Later. When Tim turns 70, or when they decide they’ve waited long enough, Tim files for benefits based on his own earnings. Michelle, then, can apply for a spousal benefit based on Tim’s bigger account.

A $48,000 bonus

Settle offers the following example to illustrate how a restricted application could earn a hypothetical couple $48,000 in additional benefits. This time the spouse with the smaller Social Security benefit claims the spousal benefit:

Suppose a husband was four years older than the wife. They both want to claim retirement at 70 (being unaware of the restricted application option). His full retirement age benefit (FRA) is $2,000 and her FRA benefit is $1,000. So, under this plan he would get $2,640 at age 70 while she gets $1,320. Now, if she uses the restricted application option, she can claim a spousal benefit of $1,000 starting at age 66, letting her retirement benefit grow. So, between age 66 and 70, she picks up a total of $48,000 of basically free money. Then at 70 she starts retirement benefits of $1,320, as in the preceding example.