Personal Finance

3 Ways Couples Can Maximize Their Social Security Benefits

Source: Social Security Administration.

There are few decisions in your lifetime that will have more importance than when to file for Social Security benefits. It's far from a cut-and-dried decision for single filers, but it can be an even more complicated matter for couples looking to maximize their lifetime benefits and ensure that expenses in their golden years are taken care of.

With a multitude of filing options available, we asked three of our Foolish contributors to suggest strategies that couples could use to boost their Social Security benefit payments, or increase their chances of maximizing their lifetime benefits. Here's what they had to say.

One way that some couples can maximize their Social Security benefits is to employ the "file-and-suspend" strategy. It involves one spouse filing to start collecting benefits and requesting to have payments suspended. That permits the other spouse to start collecting spousal benefits.

Why would a couple do this? Well, the file-and-suspend strategy is most effective for couples with significantly different income levels, in which the low-earner (aged 62 or older) is interested in retiring and would receive Social Security benefits lower than the spousal benefits he or she could get based on the high-earner's earnings history.

Source: Social Security Administration.

The rationale behind the strategy is that a spouse cannot claim spousal benefits until his or her spouse has filed to start receiving their own benefits. Thus, the need for the high-earner to file for benefits. But the law permits those benefits to be suspended and -- here's the powerful part -- keep growing over time. You probably know that if you delay starting to collect Social Security, your benefits increase by about 8% for every year you work beyond your normal or "full" retirement age until age 70. Well, those benefits will increase if you file and suspend, too. By maximizing his or her ultimate benefit, the high-earner is poised to enjoy a big monthly check later in life -- and, importantly, his or her spouse's survivor benefits will be maximized, too. For the right couples, this is a win-win-win strategy

Here's some bad news, though: there has been some interest in Washington -- for example, in President Obama's 2016 budget -- in eliminating this and other "aggressive" Social Security strategies. It remains legal for now, and may remain legal for many years, so if it makes sense for you and your spouse, give it some consideration.

Sean Williams

To borrow a phrase from Winston Churchill, understanding the intricacies of Social Security benefits for couples can sometimes feel like "a riddle, wrapped in a mystery, inside an enigma." Thankfully, there's a pretty simple solution that could help boost lifetime benefits for both partners: hold off on filing for benefits for as long as possible.

Source: Social Security Administration.

There are two primary advantages to this strategy, which I'll get to in a moment, but there's one key point that couples need to understand if they're going to hold off on filing for benefits until their full retirement age, or even later. That point is this: in order to wait, you'll need to be able to cover your expenses from other income sources. If you've been a diligent saver and have defined-savings plans, such as a 401(k) or IRA, or have a defined-benefit plan such as a pension through a previous employer, then this might be the time to consider leaning on these plans. Another idea is to consider getting a part- or full-time job in order to cover your expenses between age 62 and when you do decide to retire.

If you have the funds, or a plan to generate enough capital to cover your expenses, then holding off until your full retirement age, or optimally age 70, could be in both of your best interests. Each year that you hold off on claiming benefits tacks an additional 8% onto your monthly benefit check. As long as you live past the average life expectancy in the U.S. -- currently 78 years -- you'll typically net more in cumulative benefits by having waited to file for benefits until age 70.

Furthermore, waiting to file for as long as possible pumps up the survivor benefit available to a spouse once their partner passes away. This can be an especially important tool for a spouse who earned little to no income throughout his or her lifetime, and it could guarantee the financial independence of the surviving spouse long after their partner is gone.

Source: Social Security Administration.

As Selena discussed, the file and suspend strategy can allow a couple to start getting Social Security benefits now while boosting future payouts even further. But another strategy can sometimes work even better for families. By filing a restricted application for spousal benefits -- also known as Filing as a Spouse First or FAASF -- a higher-earning spouse can start collecting benefits while letting his or her own retirement benefit grow thanks to delayed retirement credits.

The strategy works like this: the lower-earning spouse files for regular benefits, triggering the ability for the higher-earning spouse to file for spousal benefits. Meanwhile, the higher-earning spouse's own retirement benefits get the benefit of an 8% increase for every year beyond full retirement age before claiming them.

There are some catches, though. The higher-earning spouse needs to wait until reaching full retirement age, as you're not allowed to file a restricted application to get early benefits. If you file early, you'll be deemed to claim both spousal benefits and your own work benefit at the same time, and that won't produce the results you want.

Nevertheless, in the right situation, the FAASF strategy can be a big winner for couples looking to make the most of Social Security. It's smart to look both at FAASF and file and suspend to see which might work better for you and your family.

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