Q & A
Ask Rusty – Delayed Retirement Credits and Restricted Application
Dear Rusty: My wife is 66 and not collecting S.S. She wants to wait until age 70 to collect the larger benefit, but I know she could collect now and her payments will grow if she continues to work until age 70 because there were at least 4 years that she had no income and several years where her income was only $2k – $3k. . In the next 5 years she will earn around $25K per year. My question is, what will be the difference in benefits at age 70 if she just waits to collect versus if she collects now and continues to contribute to S.S? Our birth dates are 12/1950 (wife) and 05/1953. I am not yet collecting benefits. Signed: Trying to Maximize our Benefits
Dear Trying: The first thing to keep in mind is that for each year of your wife’s working career her earnings are adjusted for inflation before her benefit calculation is done. So, for example, $3,000 earned in 1971 would, for purposes of computing her benefit, be adjusted to about $21,450 in today’s dollars. The same is true for earnings in each of the years up to when your wife turned 60 years old, but only to the maximum taxable earnings for each year. So your wife’s benefit would only increase as a result of her working now if she earned more than any of the inflation-adjusted earnings for one or more of the years in the 35 years used to calculate her benefit. However, replacing any years in which she had zero earnings would improve her benefit a small amount.
Since your wife has reached her Social Security “full retirement age” of 66, she’s entitled to 100% of what’s called her “primary insurance amount”, or PIA. For each year she waits beyond age 66 she’ll earn delayed retirement credits (DRCs) to the tune of 8% per year, up to age 70. So if her PIA is $1,000 at age 66, she would instead receive $1,320 if she retires at age 70. Considering that any adjustment to her PIA from working would actually be very small due to the 35 year averaging and earnings indexing, the guaranteed 8% per year benefit increase would appear to be a prudent path. However, there’s another strategy you may want to consider.
Since both of you were 62 years of age prior to January 1, 2016, you have available to you a strategy known as the “Restricted Application”. This “loophole” was closed by the Bipartisan Budget Act of 2015 for all except those born prior to 1954. Using this strategy, one spouse can begin receiving benefits and the other spouse can, once they reach their full retirement age, file a “Restricted Application for Spousal Benefits Only” and allow their own personal benefit to earn Delayed Retirement Credits up to age 70. This would typically be used to enable a lower-earning spouse to begin benefits while the higher-earning spouse’s benefit grew to its maximum of 132% of PIA. Using this strategy, your wife could start her benefits now, and you could file the restricted application and collect spousal benefits from her work record while letting your own grow at 8% per year until you are 70. You would then switch to your own larger retirement benefits. At that point your wife could switch to spousal benefits from your record if higher than her own, and both of you will have collected benefits on her record during the years in between.
A final note: An important consideration is the potential increased survivor’s benefit your wife would be entitled to as your widow, since she would get 100% of your benefit rather than the lower amount she would otherwise receive on her own work record (or as your spouse). Note too that all of this is predicated upon you maintaining good health and adequate financial resources to be able to delay applying for Social Security benefits until age 70.
The information presented in this article is intended for general information purposes only. The opinions and interpretations expressed are the viewpoints of the AMAC Foundation’s Social Security Advisory staff, trained and accredited under the National Social Security Advisors program of the National Social Security Association, LLC (NSSA). NSSA, the AMAC Foundation, and the Foundation’s Social Security Advisors are not affiliated with or endorsed by the United States Government, the Social Security Administration, or any other state government. Furthermore, the AMAC Foundation and its staff do not provide legal or accounting services. The Foundation welcomes questions from readers regarding Social Security issues. To submit a request, contact the Foundation at email@example.com.