Most Americans when they reach retirement age factor in Social Security benefits to include a large part of their retirement income. In fact, actuaries have calculated that a monthly benefit of $2,200 has a present value well over $500,000. If both spouses in a household qualify for their own benefits they should consider how the “File as a Spouse First” benefit could affect the level of benefits that they receive over their lifetime. In some cases to “File as a Spouse First” can have lucrative benefits. See how this works from a June 2012 article in Forbes.com:
James and Linda Miller. James was born in 1950 and is turning 62 this year. He will receive $2,384 a month at age 66, his full retirement age. Linda is three years younger and expects to receive a smaller benefit.
“About three quarters of Americans file for Social Security benefits before their full retirement age. This mistake is statistically most costly when the husband chooses to begin claiming at age 62. In this case, such a mistake would cost the Millers $152,046 in lifetime income.
Assuming normal life expectancies, Linda should file for benefits at age 63. James will be age 66 at that point and have the opportunity to pursue an often overlooked Social Security loophole. He can choose to file only for his spousal benefit and delay filing on his own benefit until age 70. We call this “File as a Spouse First,” or “FAASF.” You can see the results of this optimal strategy listed in the table. Each box represents the amount of total lifetime benefits that would be sacrificed if James and Linda did not file at their optimal ages.
The box representing when Linda is age 63 and James is age 70 captures the highest lifetime benefit. The highlighted box represents the ideal age combination when James is eligible to begin collecting his FAASF benefit while delaying his personal benefit.”
As we have learned from the Miller’s example smart and careful planning of Social Security benefits can result in large differences in the amount of benefits collected. Because Social Security makes up an important component of the retirement security of most Americans, careful planning should be done to ensure you receive the maximum benefits possible.