Millions of married couples and divorced spouses are still qualified to use an incredible Social Security claiming strategy but don’t know it. This incredible strategy could pay them up to $70,000 in extra Social Security income before they reach their 70th birthday.
You read that right. I am not talking about living until age 90, 95 or 100 to get this extra income. If they are qualified and use this simple strategy, they would get this extra income before their 70th birthday.
Unfortunately, most of the people qualified to use the strategy don’t know it, and as a result, are losing out on up to $70,000 in extra Social Security income. By the time you get done reading this, you will know if you are qualified and have a good idea of how the simple strategy would work in your situation.
The name of the claiming strategy is called Restricted Application. Most people think the Federal Government eliminated the ability to use the strategy when they passed the Bipartisan Budget Act of 2015 in November of that year. They are wrong!
In fact, millions of people can still use the strategy as long as they were born before January 2, 1954 and haven’t claimed their benefits. In other words, if you were born after January 2, 1954, you can no longer use the Restricted Application claiming strategy, but if you were born before that date you can. We estimate that approximately 3 – 4 million people are still qualified and most of them don’t know it.
At first glance, the Restricted Application claiming strategy may appear to be somewhat complicated, but it really isn’t. It all revolves around the strategic claiming of the Spousal Benefit. If you keep that in mind when I take you through an example of how it works, it should be easier to understand.
Consider the following information for married couple, Bill and Mary.
The table below shows how the Restricted Application claiming strategy would work for Bill and Mary. Because they were born before January 2, 1954, they are qualified to use the Restricted Application (It isn’t necessary for both spouses to be born before 1/2/54, if only one was born before that date they have the ability to use the strategy).
The husband, Bill, has the bigger benefit so that is the one we want to maximize because it will also become the Survivor Benefit. Bill will maximize the size of his benefit if he waits until age 70 to claim it. But because he qualifies to use the Restricted Application strategy, he will not have to wait until age 70 before he receives some Social Security income. He will start to receive some income at age 66 in the form of a Spousal Benefit.
The table below shows the complete strategy, however we will break it down into smaller pieces throughout this blog post. Additionally, the important numbers are highlighted. The numbers in squares designate the age at which a benefit was claimed and the dollar amount of that newly claimed benefit. The numbers in circles indicate important benefit numbers.
The strategy starts with Mary immediately claiming her reduced Work History Benefit at age 63 of $1,904. Mary’s benefit is reduced because she claimed it prior to her Full Retirement Age (66). Bill does not claim any benefit at age 63, so there is a $0 in Column C for Bill’s monthly income.
From age 63 – 65, Bill and Mary only receive Mary’s benefit which starts out at $1,904 per month or $15,232 for the year. Mary’s benefit gets a little bigger every year because of an assumed annual COLA (Cost of Living Adjustment) increase of 2.5%.
Age 66 is the next number with a rectangle around it. Because Bill is qualified to use the Restricted Application strategy, at age 66 he claims and restricts his benefit to only a Spousal Benefit and starts to receive a Social Security check of $1,281 per month.
Bill must wait until his Full Retirement Age of 66 in order to claim and restrict his benefit to only a Spousal Benefit, he can not do that before that age. At age 66, Bill and Mary’s Combined Monthly Income (Column D) increases to $3,332 and their Combined Annual Income (Column E) increases to $39,984.
At this point, even though Bill is receiving some Social Security income in the form of a Spousal Benefit, he continues to delay claiming his own Work History Benefit and it receives Delayed Retirement Credits. Those Delayed Retirement Credits will increase the amount of his unclaimed Work History Benefit by 8% per year for every year he delays past age 66.
Bill receives the monthly Spousal Benefit payments from age 66 through age 69. All the Spousal Benefit payments over that four year period have a cumulative total of $63,840.
That $63,840 is the extra income that Bill receives because he was qualified to use the Restricted Application strategy. If he did not know he was qualified, and as a result, did not use the strategy, he would have lost out on that $63,840 of extra Social Security income that he received by claiming and restricting his benefit to only a Spousal Benefit at age 66. Like I said before, it’s all about the strategic claiming of the Spousal Benefit.
At age 70, Bill switches from the Spousal Benefit to his maxed out (the largest check he can receive from Social Security) Work History Benefit of $4,118 per month (Column C). His monthly check of $4,118 includes four years of Delayed Retirement Credits and eight years of Retroactive COLA credits.
On the age 70 line, Bill and Mary’s Combined Monthly Income (Column D) increases substantially to $6,382 and their Combined Annual Income (Column E) skyrockets to $76,584. The only number circled in the last column, or the Cumulative Annual Income Column (Column F) is $228,712. This represents the total Social Security income that Bill and Mary received while they waited for Bill to claim his maxed out benefit at age 70. This is the amount of money they were Paid to Wait.
Once again, most of the people qualified to use the Restricted Application claiming strategy don’t know it. If Bill and Mary were unaware, their ignorance could cost them $63,840 of extra Social Security income before Bill’s 70th birthday. In this case ignorance isn’t bliss, it could be very painful and very costly.