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Why This Is a Pivotal Year for Claiming Social Security

InvestmentNews' Mary Beth Franklin explains a valuable claiming strategy available to married couples.

Christine Benz: Hi, I'm Christine Benz for Morningstar.com. 2019 is a pivotal year for Social Security claiming. Joining me to discuss that topic is InvestmentNews contributing editor, Mary Beth Franklin.

Mary Beth, thank you so much for being here.

Mary Beth Franklin: Thanks for inviting me, Christine. I love talking to Morningstar readers, listeners, and members.

Benz: We love to have you here. You say that 2019 is really a pivotal year. Let's talk about why that is, especially for people who are reaching what Social Security refers to as full retirement age in 2019.

Franklin: Correct. There is a valuable claiming strategy available to married couples, and in some cases eligible divorced spouses, that can maximize a couple's lifetime benefits. Normally, when you file for your Social Security benefits, you are simply paid the biggest benefit to which you are entitled at that age, whether it's on your own earnings record or as a spouse. Because if I'm married to a husband who has a Social Security benefit and I never work outside the home, I may not have a benefit on my own record, but the fact that I'm married to him, means I'm entitled to a spousal benefit that's worth up to half of his amount.

So, why is 2019 a big deal? It's the last year for people who turn 66 this year that if they wait until their full retirement age of 66 to claim benefits and their spouse has already filed for benefits, they could say to Social Security, don't pay me my retirement benefit. Let it keep growing by 8% a year up until age 70. But in the meantime, pay me only as a spouse. Pay me half of my husband's benefit, pay me half of my wife's benefit while my own retirement benefit continues to grow.

Benz: And that won't affect my eventual benefit on my own work record at all, right?

Franklin: Correct. And the value of delaying my own retirement benefit if I wait till 70--the difference between collecting at 70 versus my full retirement age is an extra 32% in Social Security benefits.

Benz: That's huge.

Franklin: Huge. And that's guaranteed cost-of-living-adjusted income for the rest of my life.

Benz: The name of the game, though, is that you have to be reaching full retirement age in 2019. In 2020, this maneuver is going away.

Franklin: Right. I am one of those people who will turn 66 in 2020, I can't do this. And I always joke that my face is on a dartboard at the Social Security administration …

Benz: As you tell so many people about it.

Franklin: Right. And they know my birthday. So, it's my fault and I do apologize to anyone born in 1954 or later; we will never be able to exercise this creative claiming strategy. Now, that doesn't mean Social Security is not going to be important to me and everybody else in my birth cohort. It just means that whenever we claim Social Security benefits, we will get the highest benefit that we're entitled to at that age. We don't get to choose. We don't get to be fancy with it.

Benz: Let's discuss--we talked about married couples, why they might consider it. Let's talk about people who are divorced. How would this work?

Franklin: This is so important. Because many people don't realize that if they had been married at least 10 years, divorced, and currently single--now, you may have married somebody in between and that marriage dent, Social Security considers you currently single. So, if you are married at least 10 years, divorced, and currently single, and you turn 66 this year, you too can say, don't pay me my Social Security retirement benefit. Let it keep growing by 8% a year. Pay me only as a spouse on my ex's earnings record. And that makes people nervous. Do I have to talk to him, do I have to tell him?

Benz: Right. And you don't?

Franklin: No, you don't. You do it strictly through the Social Security Administration. They are going to check your birth year, that you are born in 1953 or earlier, that you are married for at least 10 years. That means from the date of your wedding until the date of your final divorce decree. So, my word to people out there is, if your marriage is a little rocky …

Benz: Hold on.

Franklin: … string out the paperwork--it's really important!

Benz: And this would also apply even if your spouse had married other people in between the time that you and he were married, still be eligible for this?

Franklin: Well, whenever these marriage restrictions apply to the person who is claiming benefits, OK? So, say, my husband was married, divorced, now he has married me again. So, all bets are off with that first spouse. It's just the two of us. He has claimed his benefit. I turn 66 this year, I can say, give me your benefits. If he and I were married at least 10 years and we are divorced now, even if he remarries, doesn't marry, I'm currently single, I can say, give me half of his benefits.

Benz: Got it. How about surviving spouses? So, widows and widowers, how does this restricted claiming option work for them?

Franklin: This is the most important message I'd like to get out to the whole Morningstar audience. All of these claiming changes were a result of something called the Bipartisan Budget Act of 2015. That's what put these rules into effect. That legislation did not change the fact that if I have my own retirement benefit and I am a widow or widower, I am entitled to two benefits perhaps--on my own retirement record and as a survivor benefit. And depending on my age when that event happens, I maybe able to claim my own retirement benefit first and switch to survivor benefits later, or vice versa, whichever is going to be most beneficial to me. Those rules have not changed. Unfortunately, not everyone at Social Security knows that. And I've been hearing from all sorts of readers and financial advisors who are saying, I'm a widow, I went to Social Security, they tell me I can't do this. And I say, you're wrong …

Benz: Keep pushing.

Franklin: Keep pushing! Go to the Social Security website, ssa.gov, and in the search box put "widow" or "widower," and you will get information that will come up that will tell you what your rights are.

Benz: Mary Beth, super helpful information. Thank you so much for taking the time to be here.

Franklin: Thank you.

Benz: Thanks for watching. I'm Christine Benz for Morningstar.com.