By Bill Reichenstein
Editor's note: When it comes to Social Security, there are plenty of quirky rules. In the article below, our contributor highlights two worth knowing.
Some can still file a restricted application for spousal benefits.
Someone born Jan. 1, 1954 or earlier can file a restricted application for spousal benefits if his or her spouse has filed for retirement benefits.
For example, let's assume a husband was born in March 1952 and has a primary insurance amount of $2,600, where his primary insurance amount (PIA) denotes his benefit level if he begins his Social Security benefits at his full retirement age (FRA) for retirement benefits. His wife was born in February 1958 and will first be eligible for Social Security benefits in March 2020 at age 62 and one month. Her PIA is $1,000. She could file for her retirement benefits (that is, benefits based on her own earnings record) in March 2020 and receive $729 per month and her husband could file a restricted application for spousal benefits in March 2020 and receive $500 per month, half of her PIA. At 70 (March 2022), the husband could switch to his retirement benefits, which would be $3,432 per month (before future cost-of-living adjustment, or COLA, increases), which reflects 32% delayed retirement credits for delaying his retirement benefits for four years, [$2,600 x 1.32 = $3,432]. At that same time, she would add spousal benefits of $300, [half of $2,600 - her PIA of $1,000], for total benefits of $1,029 (before COLAs).
Consider a second Social Security claiming strategy. He files for retirement benefits at age 70 and she files for spousal benefits of $1,300 (half of his PIA) at her FRA of 66 years and 8 months in August 2024 (with the first payment in Sept 2024). Yes, once she files for spousal benefits at her FRA then her monthly benefit of $1,300 will exceed her monthly benefit in the first strategy of $1,029. However, in this second strategy, they do not get $1,229 per month ($729 hers and $500 his) for the next two years.
This is a wonderful strategy for married couples where the older spouse with the higher-PIA was born Jan, 1, 1954 or earlier.
Both spouses would have to live until the younger spouse was ready to turn 96 and the older spouse was ready to turn 102 for the second strategy to provide more joint lifetime inflation-adjusted benefits than the first strategy. Obviously, this is highly unlikely. (After the death of the first spouse, and it does not matter which spouse dies first, the survivor will continue his retirement benefits of $3,432 (before COLAs). So, we can ignore benefits payable to the surviving spouse since they are the same in both strategies.)
When's Your Birthday?
Social Security follows English common law that finds that a person attains an age on the day before the birthday.
The Social Security Administration considers someone to "attain" an age one day before their birthday. It's like everyone was born one day before their birthday. Thus, the FRA for retirement and spousal benefits for someone born Jan. 2, 1958 through Jan. 1, 1959 is 66 years and eight months. Most authors mistakenly say people born in 1958 have an FRA of 66 years and eight months, but this is not entirely accurate.
Similarly, this explains the Jan. 1, 1954 or earlier date in the first quirky rule discussed above. That is, the change in Social Security rules that passed in November 2015 said people who "attained" age 62 by the end of 2015 could file a restricted application for spousal benefits, if their spouse had already filed for retirement benefits. However, this quirky rule can also affect anyone born on the first of any month.
For example, someone born Oct. 1, 1950 will attain age 70 on Sept. 30, 2020. Therefore, they can apply for age-70 level benefits beginning for the month of September, 2020. (Benefits for a month are always paid the next month.) Similarly, someone born Feb. 1, 1958 will attain their FRA for retirement and spousal benefits in September 2024 - on Sept, 30, 2024 to be exact. Thus, they can apply for their retirement benefits beginning in September 2024 and the earnings tests cannot restrict their benefits; the earnings tests do not apply to people who have attained their FRA for retirement benefits.
Finally, suppose the higher-earning spouse has a PIA of $2,800 and his wife wants to file for full spousal benefits of $1,400 (that is, half of his PIA) as soon as she is eligible for these full spousal benefits. If she was born April 1, 1958 then she has an FRA for retirement and spousal benefits of 66 years and 8 months and can file for full spousal benefits for the month of November 2024, since she will attain age 66 and 8 months on Nov. 30, 2024.
About one in every 30 people and one in 15 married couples need to be aware of this quirky rule.
About the author: Bill Reichenstein is head of research at Social Security Solutions, Inc. and Retiree, Inc., professor emeritus of investments at Baylor University, co-author of Social Security Strategies: How to Optimize Retirement Benefits, and the author of Income Strategies: How to create a tax-efficient withdrawal strategy to generate retirement income.