The Restricted Application for Social Security Spousal Benefits
Good news! There is a relatively unknown provision that could significantly increase your social security benefits. This provision is called a “Restricted application for Spousal Benefit” and it allows you to apply for benefits based on your spouse’s record while delaying your own social security benefit. By doing so, you will get 50% of your spouse’s benefit amount while continuing to earn delayed retirement credits of 8% a year up to a maximum at age 70.
The restricted application is available to you only when the following requirements have been met:
- You must reach full retirement age to file the restricted application; and
- You have not filed for your own retirement benefit before; and
- Your spouse has filed for his/her own retirement benefit (could do “file-and-suspend” strategy)
- Ex-spouses? An ex-spouse can use this strategy as well provided he/she was married to the former spouse (must be age 62 and older) for at least 10 years and has not remarried.
Minimize Longevity Risk
This strategy has two goals in mind: maximizing expected lifetime benefits and minimizing longevity risk. As a study published by The Journal of Financial Planning stated: “you can think of retirement resources as consisting of two parts: the financial portfolio and Social security benefit.” Delaying social security benefits can increase the overall longevity of a retirement strategy which includes both portfolio and Social Security income. By using this claiming strategy to maximize your Social Security income over your life time, you reduce the amount of income you need to withdrawal from your portfolio.
A Real Client Example –Breakeven Point
John and Mary are age 71 and 65. John began his monthly benefit at age 66 and Mary is just about to retire and is wondering whether she should file for her own benefit at her full retirement age 66. We created an analysis assuming life expectancy of 100 for both John and Mary and determined that a restricted application will reach the breakeven point at age 76 for Mary (see this graph). Since Mary is in good health and is expected to live past age 76, it makes sense to file a restricted application. In this case, Mary will receive 50% of John’s unreduced benefit from age 66 until age 70 and then she will file for her full benefit. After the break even age of 76, Mary will be approximately $9,000 a year ahead for as long as she lives. The additional income received from Social Security over Mary’s lifetime could be as much as $100,000 to $200,000 depending on how long she lives.
Make sure that you have reached your full retirement age when applying for a restricted application; otherwise, Social Security will deem that you have applied for an early retirement benefit which will be a reduced amount. Also, once you apply for a restricted application, your Medicare account will be switched over to your spouse’s account under his/her Social Security number. Don’t be surprised when you receive a “new” Medicare card with your name but your spouse’s Social Security number. If you have paid the Medicare premium under your “old’ account, be sure the premium credit is applied to your “new” account.
How to Apply?
You can apply for the restricted application in a Social Security office or go online at www.ssa.gov. We recommend you complete the application at a Social Security office because the online application is confusing and any unintended error may delay the application process. When you speak to an agent, be sure to distinguish between a “restricted application” and “file and suspend”. It is not uncommon for an agent to be unfamiliar with this claiming strategy.