If you’ve read my book Guide to Social Security… and A Better Retirement and I talked about it in my retirement blog, you know that postponing Social Security until age 70 makes a great deal of sense for most healthy, married Americans that can do without the income. Of course, there are numerous exceptions, and before postponing your benefits you should seek professional guidance. Obviously most haven’t because about two-thirds of current Social Security recipients started taking benefits before their normal retirement age. For the vast majority, this was not what they should have done. Is there a way to reverse this mistake and start again?
Yes! The Social Security Administration allows you to pay back the money you’ve received in Social Security benefits – without interest and without adjustment for inflation – and reapply for higher benefits. All you need to do is complete form 521, “Request for Withdrawal of Application”. You’ll be asked the reason for your action but don’t worry because any answer is acceptable. Let’s say you started at age 62 and have been drawing $1,000 a month for eight months but now want to reapply. Along with form 521 you’d repay the $8,000 and then you can reapply when ready. If you filed a tax return during the period, you’ll want to report any overpaid taxes on your next tax return. If you wait until age 70 to reapply, your benefits will grow about 8% annually, plus cost-of-living adjustments, which means your benefits will more than double those at age 62. My Guide to Social Security gives several other good reasons to postpone Social Security if you can afford to do so. In fact, the typical family may be able to add as much as $200,000 to their lifetime retirement income if the primary breadwinner postpones Social Security until age 70.
Let’s look at Fred and Sue, both aged 66 (normal retirement age for both) and eligible to start SS benefits. Both worked outside the home, and at age 66 each is entitled to $1,500 in monthly Social Security benefits, plus annual cost-of-living adjustments, for the remainder of their lifetime. A Mortality Table shows that Sue is expected to outlive Fred by several years. The Social Security regulations say that one spouse is entitled to what they qualify for based on their own earnings record or 50% of what the higher earning spouse will receive, whichever is greater. Since Sue is expected to outlive Fred, wouldn’t it be nice if Fred postponed benefits until age 70 so that Sue would get a big raise in Social Security benefits if Fred dies first? Is there a way for Fred to get benefits based on Sue’s lifetime earnings record and then apply at age 70 for higher benefits based on his lifetime earnings record?
Due to a little-known glitch in the Social Security regulations, there is a way. Fred would apply for spousal benefits and receive 50%, or $750, based on Sue’s earnings. He would draw this amount, increased annually for cost of living adjustments, and at age 70 reapply based on his earnings record. Presto, he will get substantially higher benefits for postponing and these, too, will be adjusted annually for inflation. At Fred’s death, Sue will be entitled to the greater of the two and her benefits will ratchet up to what Fred was receiving. If you think this is “on the edge”, think about the combinations for divorced spouses. If you were married for ten years, been divorced for two years, are age 62 or more and have not remarried, you are eligible to apply for dependent benefits based on the working record of your ex-spouse. If you have several ex-spouses that meet the foregoing qualifications, they can all be drawing SS benefits simultaneously with no impact on your, or a current spouse’s, future benefits. Even if a qualifying ex-spouse gets remarried and subsequently divorced, they can still file for dependent benefits based on a former spouse’s work record.
The foregoing shows two easy ways to maximize your Social Security benefits by taking advantage of little known glitches in the rules. More and more married couples are realizing that postponing Social Security is the wise move, because there is an increasing probability that at least one of them will live well beyond age 90. Since Social Security is a lifetime annuity promised by the U.S. Government with benefits indexed to inflation and tax-favored, making them a relatively larger part of your retirement income is smart. This is done by postponing until age 70, if possible, and taking advantage of the two “loopholes” we’ve discussed. By using these loopholes, you’re adding to the financial woes of the Social Security System, but until Congress closes the gate you should exercise your options.
Shelby J. Smith, Ph.D.
I am age 66 and I am employed full time and I am receiving my social
security check monthly. My wife just turned 62 and she is working full
time, but she isn’t receiving social security.
It is my understanding that we are eligible for her to get her spousal
benefit. We applied yesterday and they called us back today and said
she didn’t qualify because she was making over $14,160.
Please advise.
Dear James,
The rule for Social Security benefits says that if you are below normal retirement age and still working, you will lose $1 in benefits for every $2 you make over $14,160 annually. The loss goes to $1 in every $3 earned during the year you reach normal retirement age, and the threshold amount is higher than $14,160. If your wife was born between 1943-54, her normal retirement age is 66. Once she reaches this age, there is no penalty for working.
Since your wife is younger than you, it might have made sense for you to postpone your Social Security benefits until age 70 (if you can afford) because if you expire first (and the mortality table say you will) she will qualify for the higher of what she was getting or what you were receiving. Since your benefits will grow at about 8% annually for each year postponed until age 70, this could mean a big difference for her.
There are numerous circumstances that need to be considered … but if it makes sense, you can repay the Social Security Administration all the money you’ve received as benefits (without paying any interest) and then postpone until a later age. If you wife stop working, she will be eligible for the greater of (a) what you get or (b) what she qualifies from her own work record.
By the way, if your wife were not working she would qualify for benefits on her own work record or as your dependent. I also wrote a publication called “The Guide to Social Security & a Better Retirement “ that you can read! Hope this helps.
I have several questions regarding Social Security that I’m hoping you could answer:
1) Does the “file and withdraw” strategy, as outlined recently in Kiplinger’s and elsewhere, apply to dependent children? My husband, now 64, plans to retire at age 70. However, he would like to file for SS benefits at age 66 and then immediately withdraw his application so that our daughter, who will be 16 at the time, can receive benefits on his record. Do SS regulations allow this?
1) A related question: I am 3 1/2 years younger than my husband (I am almost 61). If I take SS benefits on my record when I turn 62, can my daughter collect on my record and then collect on my husband’s record (which would give her a higher benefit) when he turns 66 (and pursues the “file and withdraw” strategy?
I spoke with a SS rep by phone about these issues, but, alas, he was unfamiliar with “file and withdraw” under any circumstances.
Thank you.
Kathleen
Good questions Kathleen. I’m not surprised that the Social Security representative was unfamiliar with filing and suspending benefits to allow a dependent spouse and child to draw benefits. The rules are the primary recipient must be of Normal Retirement Age (age 66 if born between 1943-54) before they can file and suspend.
This is generally done by notation in the “remarks” section of the Social Security application; however I’ve been told that Form 521 is being modified to permit this. Once done, you can draw dependent benefits if you are (a) age 62 or over and (b) the amount of your benefits based on your work record are not greater – before NRA you must take the greater of the two. Your dependent daughter should also be eligible for dependent benefit after the suspension. Your minor daughter can only be a dependent of a primary SS recipient and she should be able to change at any time to take advantage of higher benefits. In order words she cannot be your dependent if you are your husband’s dependent.
Good luck in getting the Social Security Administration to acknowledge all of this – for the record their headquarters in Baltimore generally gives the right answers.
Shelby