For years, retirees have left tens of thousands of dollars on the table by how and when they claimed Social Security. Some claimed too early, while others didn't know of some of the other benefits involving spouses and survivors.
Mary Beth Franklin, a certified financial planner and author of "Maximizing Your Clients' Social Security Benefits," has been one of the few observers of the Social Security system who's kept on top of every nuance and recent change.
Franklin's take on a recent Congressional move to end a lucrative claiming strategy is that you still have plenty of options to boost your benefits. You just have to know what's right for you and your spouse.
What's happened with Social Security is that Congress shut down a provision called "file and suspend" that allowed one spouse at full retirement age to file for benefits, then suspend actually taking monthly payments until age 70. Then the other spouse could claim benefits, though, taking half of the benefits due the "suspended" spouse. This had the net effect of boosting total benefits for the couple over time.
But the suspension strategy was nixed by Congress as of April 29. You can't do it anymore unless you already filed before that date and met a few other qualifications.
"Congress closed down the Social Security loophole to pay for Medicare and Social Security Disability Income," Franklin said at a recent Investment News Retirement Income Summit in Chicago. Now, Franklin notes of the new law governing Social Security, "no one can receive benefits during a suspension period or collect a lump sum."
For couples who were hoping to maximize their Social Security benefits, this was clearly a step back. But you can still come out ahead if you understand how Social Security works.
There's still the "delayed retirement credit," Franklin says, which gives you a nice bump if you don't collect benefits at age 66 and wait until 70. What you get -- if you can delay -- is well worth waiting for.
"You get a risk-free 8% annual return for those four years," says Franklin, saying that's how much your monthly benefit will be increased by if you wait. Moreover, since spousal and survivor benefits are based on the other spouse's claim, they will get a raise as well. Even better, all of the claiming rules also apply to same-sex couples, courtesy of a Supreme Court ruling last year.
The main question you need to ask, is if you can wait to claim Social Security. Not everyone can. If you're in poor health or disabled, it may make more sense to file at age 62, the earliest you can apply.
But filing early has a major drawback: You take a haircut of 25% from what you'd receive at your full retirement age, which is 66 for most people. So health matters in this decision more than the amount you'll be getting later on.
In terms of of pure retirement finance, though, consider this. Social Security, originally designed as an income replacement/social insurance program, has become "the base of the pyramid" for retirement savers, Franklin says. That means it's an asset that forms the foundation for your portfolio, along with savings, pensions and annuities. For many, it's the largest single source of income.
Although I've always advocated Social Security expansion to offer more income for more retirees, that's unlikely to happen soon. In the meantime, you'll have to work with the system. It may not offer enough to live on, but it's the only guaranteed, inflation-adjusted monthly payment out there now. Using it wisely takes some homework.
