How to Maximize Social Security With Spousal Benefits

Financial advisors may have different approaches when it comes to retirement planning, but they seem to agree on one thing: Most people don't understand how to make the most of Social Security spousal benefits.

"There are so many details and different variables," says Aries Jimenez, director of business development for San Diego Wealth Management. "People don't take the time to plan."

Spousal benefits are one way to maximize what you receive from Social Security. However, financial advisors caution that the money alone shouldn't dictate how you claim your retirement Security benefits. Here's what you need to know about spousal benefits.

The Basics

Spousal benefits allow a husband or wife to receive up to 50 percent of a spouse's Social Security benefits. These benefits are available even if one spouse has never worked.

For married couples, the following criteria must be met:

-- The individual claiming spousal benefits must be age 62 or older.

-- His or her spouse must be eligible to receive Social Security retirement benefits.

-- His or her spouse must have already filed to receive those benefits.

While a spouse can begin claiming benefits at age 62, Neil Krishnaswamy, a certified financial planner with Exencial Wealth Advisors in Plano, Texas, cautions the monthly amount can be significantly lower than what that person would receive if he or she waited a few more years.

"There is a lot more flexibility by waiting until their full retirement age," Krishnaswamy says. (The full retirement age ranges from 65 to 67 depending on the year you were born.)

For instance, a woman who has reached her full retirement age can file a restricted application to claim spousal benefits. This application lets her receive spousal benefits while allowing her own Social Security benefits to grow until the monthly amount maxes out at age 70. Then, she can switch to her own benefits at that point. Krishnaswamy notes this option is not available to those who choose to receive spousal benefits before their full retirement age.

Special Considerations for the Divorced or Widowed

Russ Thornton, a wealth manager with Wealthcare Capital Management in Atlanta, specializes in financial planning for divorces, widows and women. He points out that divorced women shouldn't overlook their ability to claim spousal benefits.

"If you're divorced and were married at least 10 years, you're eligible to receive half of your spouse's benefits," Thornton says. "[Your claim] does not impact his or her benefits."

Unlike married couples, divorcees don't have to wait for former spouses to file for Social Security benefits. As long as they were married 10 years and have been divorced at least two years, they can file for spousal benefits at age 62, regardless of their spouse's filing status. However, their former spouse must also be at least age 62. As with married couples, filing for spousal benefits before full retirement age can result in a reduced monthly amount.

Widows and widowers can begin claiming benefits at age 60 or as early as age 50 if they have a disability that occurred or started within seven years of their spouse's death.

In the case of both widows and divorcees, spousal benefits are only available if an individual has not remarried.

Suspend and File to Maximize Benefits

Simply knowing you can claim a spousal benefit may be one way to maximize your Social Security payment. A second way involves a strategy known as "suspend and file."

With this method, a spouse can receive spousal benefits while the other spouse takes advantage of a provision that allows his or her monthly Social Security benefit to grow.

For example, a husband can file a claim for Social Security and immediately suspend his payments, which opens the door for his wife to claim spousal benefits. By suspending his payments, the husband's monthly benefit will continue to receive an annual increase until he ends the suspension or reaches age 70.

"From age 66 to 70, you get what essentially amounts to an 8 percent increase [in your monthly amount] each year you delay benefits," Thornton says.

That means an individual may want to wait until age 70 to begin drawing Social Security retirement benefits to receive the largest monthly amount possible. However, for a married couple, spousal benefits are only available once a Social Security claim has been filed.

You can only file and suspend your benefits when you reach your full retirement age. Once you have filed and suspended, your spouse can claim spousal benefits at any time once he or she reach age 62.

Waiting for More Money May Not Always Make Sense

Filing and suspending offers married couples the chance to begin drawing Social Security retirement benefits early while allowing the primary breadwinner's monthly amount to increase until age 70. However, financial advisors say good planning is about more than simply maximizing your monthly payment.

As Jimenez puts it, "You could wait to maximize benefits, but what if you die the next day?"

While it makes sense mathematically to wait until age 70 to begin drawing benefits, Thornton says not everyone is in a position to do that. Depending on a couple's finances, health and life expectancy, it may make more sense, or may be necessary, to begin benefits earlier.

Still, that doesn't mean you shouldn't try to make the most of the benefits you have coming in retirement. Social Security should be part of a larger discussion about retirement planning, and a financial professional can help you develop a strategy that fits your needs and situation.