Social Security Q&A: Is There a Way to Increase Benefits Reduced Due to Early Retirement?Commentary by Laurence Kotlikoff
August 07, 2014
Social Security may be your largest or one of your largest assets. How you manage it, by deciding which benefits to collect and when, can make an absolutely huge difference to your lifetime benefits. And those with the highest past covered earnings have the most to gain from maximizing their Social Security.
I’ve been answering questions and writing columns about Social Security each week for the past two years on PBS NEWSHOUR’s website. The editors at Forbes asked me to post a Q&A each day from those columns. To see all my columns, please go to my software company’s site, www.maximizemysocialsecurity.com, and click More Press below the WSJ quote.
Today’s question is about whether benefits reduced due to early retirement are always permanent or if there can ever be a way to increase them. It also raises the possibility of two distinct strategies depending on the specifics of the scenario.
Question: I will turn 66 in October 2013, when hopefully, I will be collecting full Social Security benefits. My wife will turn 62 in October 2013. We both have applied for the benefits. Her reduced benefit check will be a lot less than my 50 percent. Is she locked into that reduced amount for the rest of her life or can she reapply at 66 for 50 percent of my benefits?
Answer: If you do what you are doing, your wife will indeed be locked into a reduced retirement benefit, plus a reduced excess spousal benefit, which may be zero in her case. But she won’t be locked into this forever. At 66, when she reaches full retirement age, she can suspend her retirement benefit and start it up again at age 70 at a 32 percent higher real (inflation-adjusted) level. Between ages 66 and 70, she can continue to collect her permanently reduced excess spousal benefit, but again, that could be computed as zero. For it to be positive, her full retirement benefit has to be less than half of your full retirement benefit.
The best strategy for you is likely one of two options. Here’s the first: She applies for her reduced retirement benefit at 62, and at that point, you apply just for your spousal benefit. This will equal half of her full retirement benefit. When you hit 70, you file for your retirement benefit, which will be 32 percent larger (because you waited to collect it) than if you began collecting it at 66. When you start collecting your retirement benefit, your wife will then become eligible for an excess spousal benefit, but again, this could be zero depending on the aforementioned conditions.
The second option is that neither of you does anything for four years. When you are 70 and she is 66, you apply for your retirement benefit and she applies just for her full spousal benefit, which will equal half of your full retirement benefit. Because she won’t be filing for her own retirement benefit, and because she’ll at least be at full retirement age, the full spousal benefit and not the excess spousal benefit formula will apply. When she’s 70, she would then file for her own retirement benefit.
Which strategy will maximize your lifetime benefits? Only commercially available software can say. Our software, which costs $40, lets you enter any number of different what-if scenarios and compare them to the maximized dates