I think almost every financial professional should be somewhat astute with Social Security. However, only a minority of them are. This is one area where CG Financial Group differentiates ourselves from our competition, among many other advanced planning concepts.

First off, let’s step back and talk about “Delayed Retirement Credits”. We all know that when you delay filing for Social Security retirement benefits past “full retirement age”, you get a .66% increase per month that you delay past that point. So, that comes out to be 8% per year in delayed retirement credits. This means that if my full retirement age is age 67, then by delaying until age 70 – which is the latest I can delay while getting delayed retirement credits – then I will have a 24% increase on my Social Security benefit permanently! In a time where everybody is living longer, if you do the math over your expected lifespan, delaying often makes sense. 

So, where is the mistake that I see many consumers make or intend to make (until they speak with me)? It has to do with spousal benefits. What I just explained above where there are delayed retirement credits is if a Social Security recipient is going to be taking Social Security based off of their own earnings record. However, if you are in a situation where you are taking “spousal benefits” based off of your spouse’s earnings record, delayed retirement credits do NOT apply.

Let’s take a 63-year-old couple who is trying to decide when they should file for Social Security.  Because they were both born in 1960, we know that their “Full Retirement Ages” are age 67 (per the Social Security tables).  He has made a ton of money over his lifetime, and she has made very little. This hypothetical is not Charlie being a stereotypical pig but is actually very common in families, like mine.  Oftentimes SHE has stayed at home with the kids and therefore has not earned much while her spouse continued to work to bring home the bacon!  By the way, we all know who had the toughest job, and the most important job.  HER.  Well, the Social Security administration recognizes this dichotomy and therefore says that if 50% of one of the spouse’s full Social Security Amount (Primary Insurance Amount) is more than her full retirement amount which is based off her own earnings record, then she can take her Social Security benefits based off of 50% of his full retirement amount.  For instance, if his full retirement benefit is $3,000 per month based off his earnings record and hers is $1,000 per month, then you can bet that she will be looking to leverage the “Spousal Benefit”, which would come out to $1,500 per month.  To be clear, I am saying “full retirement amount” to simplify the conversation.  Technically, it is the “Primary Insurance Amount”, which is defined as the amount of Social Security benefits one would receive based off their earnings record at FULL RETIREMENT AGENT.

So, for our 67-year-old couple it is a common strategy for him to delay filing until age 70 in order to get that 24% step up in his benefits.  If his “Primary Insurance Amount” was $3,000 (at full retirement age) then by waiting until age 70, he would get $3,720 (not including COLAs) for the rest of his life.  It may also be natural for her to also want to delay until age 70 so that she gets those 24% step ups on her “spousal benefit”.  She might think that those 8% delayed retirement credits would be on top of her $1,500 per month benefit.  Wrong, Wrong, Wrong.

As I have told a several consumers, spousal benefits do not get those delayed retirement credits like they do if it was otherwise based on her own earnings record!  Hence, if she delays until age 70, effectively what she has done was left three years of benefits on the table.  Again, this is because there is no reward for waiting until age 70 when it comes to spousal benefits.  Her spousal benefit at age 70 would still be $1,500 (not including COLAs).  Again, she left three years of benefits on the table.  Wouldn’t that be a shock to her once she turned age 70 and saw that she only got $1,500?

More than likely, the ideal strategy would be that she files at her full retirement age (67) so that she does not leave those three years (ages 67-70) of Social Security benefits on the table.  However, remember that unless her spouse has filed for his benefits, she does NOT get the spousal benefit, at least until the time comes that her spouse files. 

So, because our hypothetical guy won’t file until age 70 in my example, then what benefit will she get between the ages of 67 and 70?  The benefit is based off her own earnings record, $1,000 per month (not including COLAs).  Then, when he files at age 70, her benefit will bump up at that time to reflect the “spousal benefit”.

What have you done by alerting this couple that spousal benefits do NOT get delayed retirement credits?  You have allowed her to not leave $36,000 ($1,000/month times 36 months) on the table!