3 Smart Strategies for Navigating Social Security Benefits with the 2024 Rule Change
In December 2014, Social Security provided retirement benefits to 26.3 million women aged 62 and older. Remarkably, only about half of these women received benefits based on their own earnings, while the rest depended partly or fully on their spouse’s earnings. However, a significant change is on the horizon for 2024: the discontinuation of a Social Security spousal rule that allowed couples to maximize their benefits.
If you haven’t turned 70 by January 1, 2024, you can no longer utilize the previous strategy that helped couples optimize their Social Security income. As many married couples rely heavily on Social Security for their retirement income, understanding this rule change is crucial for your financial future. Fortunately, there are still effective strategies available to help you make the most of your benefits.
Understanding the Expired Rule
The previous rule allowed the higher-earning spouse to claim spousal benefits at their full retirement age while the other spouse claimed their own benefits. The higher earner could then switch to their own benefits at age 70, benefiting from delayed retirement credits that increased their monthly payment. Simultaneously, the lower-earning spouse had the option to choose between their own benefit or the spousal benefit, whichever was higher.
This “file and suspend” strategy was popular among couples. It enabled the higher earner to file for benefits at full retirement age but immediately suspend them, allowing the lower earner to claim spousal benefits. Meanwhile, the higher earner’s benefits continued to grow until age 70. Although Congress ended this strategy in 2015, those born before January 2, 1954, could still use it. With this option now unavailable, exploring new strategies to optimize Social Security income is essential.
Strategy #1: Plan Ahead as a Couple
Although the spousal rule is ending, couples can still maximize their Social Security benefits by planning together. Discuss who should claim benefits and when, as Social Security will always pay the higher of an individual’s benefits or spousal benefits to the lower earner. To make informed decisions, create online accounts with the Social Security Administration and review estimated benefits at various ages.
Have a thorough discussion with your spouse about retirement goals and crunch the numbers together. This will help you determine the best claiming strategy for your situation and ensure both of you optimize your Social Security income. Have an open conversation with your spouse about your retirement goals and run the numbers together. By doing this, you can figure out the best claiming strategy for your situation and ensure that you both make the most of your Social Security income.
Strategy #2: Avoid Claiming Benefits Too Early
You can begin claiming Social Security benefits as early as age 62, but doing so can significantly reduce your monthly benefits—by up to 30%. For instance, if your full retirement benefit is $2,000 per month at age 67, claiming at 62 could lower it to $1,400. Since a spouse’s benefit is based on the primary beneficiary’s payout, claiming early can also diminish the spousal benefit.
If possible, wait until you reach your full retirement age to start claiming benefits. For those born in 1960 or later, the full retirement age is 67. Delaying until your full retirement age ensures you receive the maximum benefit available. If possible, wait until you reach your full retirement age to start claiming benefits. For those born in 1960 or later, the full retirement age is 67. Waiting until your full retirement age ensures you receive the maximum possible benefit.
Strategy #3: Consider Timing Carefully
While waiting until age 70 to claim benefits can increase the primary beneficiary’s monthly payment, it might not always be the best choice. Spousal benefits are capped at 50% of the primary’s full retirement benefit, not the increased amount from delaying. Therefore, there’s less incentive for spouses to wait beyond their full retirement age to start benefits.
One option is for the lower-earning spouse to start claiming reduced benefits as early as 62, which provides immediate cash flow while allowing the higher earner to delay their benefits until age 70. This approach ensures that survivor benefits remain unaffected if the lower earner passes away after reaching full retirement age.
The Bottom Line
The end of the Social Security spousal rule might be a setback for some couples, but there are still ways to manage your benefits effectively. By planning ahead, avoiding early claims, and understanding the details of spousal and survivor benefits, you can continue to optimize your Social Security income. Each individual’s situation is unique, so consulting with a financial advisor specializing in Social Security planning can help you make the best decisions for your needs and goals. With careful planning, you can continue to make the most of this essential retirement resource.
source: Social Security Administration, viral-chatter.com
