In Monday's post, I wrote that a reader's Social Security strategy is a smart way to maximize a couple's retirement benefits.
Now Barry C. Picker, a Brooklyn New York CPA and financial planner, has alerted me to an even smarter plan.
Here's how my reader described his situation. We'll call his strategy Plan A:
We don't need Social Security until we're both 70 years old. My full retirement benefit (FRA) at age 66 is $2,500 per month. My wife's FRA Social Security benefit is $2,000 per month. I'm two years older than she is. Our plan is that at age 68, I'll file and suspend. That will allow my wife, who will then be 66, to file for a spousal benefit of $1,250 -- 50% of my $2,500 full retirement benefit. At age 70, she'll switch to her own retirement benefit. And I'll start collecting my benefit when I turn 70.
On Monday, I explained why that's a good idea. Let's call this couple George and Martha. With Plan A, between Martha's 66 birthday and her 70 birthday, together they'd collect $139,200 in Social Security:
Year One: George files for his benefit but immediately suspends his application. Martha collects $1,250 a month in spousal benefit.
Year Two: Martha collects $1,250 a month in spousal benefit.
Year Three: Martha collects $1,250 a month. And George, now 70, starts to collect his own benefit. It's $3,300 a month -- 32% bigger than his original $2,500 benefit thanks to his four years of delay.
Year Four: Martha collects $1,250 a month, George collects $3,300 a month.
In year five, Martha will be 70 and switch to her own enhanced benefit -- $2,640. Going forward, George and Martha together will collect $5,940 a month.
(I've left out annual inflation adjustments, both for simplicity's sake and because we don't know what they'll be.)
Plan A is a good one: In four years, Martha has collected $60,000 as a spouse, and George $79,200 based on his own record. It adds up to $139,200.
But after reading my post, Picker suggested an alternative plan, which in a flash of inspiration I've called Plan B:
Let Martha file for her own $2,000 benefit when she turns 66. George who will then be 68, can file for a spousal benefit based on her record, postponing his application for his own benefit until he's 70.
With Plan B, Picker points out, the couple would collect an additional $60,000 in the first four years:
Year One: She collects her full $2,000 monthly benefit. He gets a $1,000 monthly spousal benefit.
Year Two: She collects $2,000 a month; he collects $1,000 a month.
Year Three: She collects $2,000 a month. He turns 70 and switches from the spousal benefit to his own enhanced $3,300 monthly benefit.
Year Four: She collects $2,000 a month. He collects $3,300 a month.
In four years, Martha will have received $96,000, and George will have received $24,000 as a spouse and $79,200 based on his own record. Grand total: $199,200.
To be sure, going forward their total monthly benefit will be only $5,300. (With Plan A, it would be $5,940.)
With Plan A, they collect $60,000 less in years one through four, but starting in year five their combined annual benefits will be $7,680 more.
With Plan B, they get an extra $60,000 in years one through four, but $7,680 less in combined annual benefits thereafter.
This is yet another example of why it really pays to weigh your options before you file for Social Security.
(In case you're wondering how long George and Martha would have to live before Plan A nets them more than Plan B, I don't have the answer. They should ask their financial adviser to crunch the numbers for them.)
Please send your questions to [email protected]. I'm sorry I can't respond personally to every email. Questions are only addressed online.
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