Last night, my friend, Jane, invited me for drinks on her deck. We spent a lovely evening overlooking the Frying Pan River. “I’m going to do exactly what you told me to do about Social Security,” she said at one point. Of course, I didn’t remember what I’d told her, but she reminded me. Jane is going to be 66 in October, and she is going to file for spousal benefits now and switch to her own benefits when she’s 70. This is known as the Claim and Switch, and the deadline to file is the end of this year. It could bring Jane an additional $60,000 over the next four years.
Claim and Switch In my book, Your Social Security Retirement Toolkit, I wrote, “If you were born on or before January 1, 1954, you may file for spousal benefits at your Full Retirement Age and later switch to benefits on your own record. Benefits on your own record will have continued to increase at 8% per year.
I know, that’s a mouthful, right? Let’s break it down.
Full Retirement Age is the age the Social Security Administration deems you eligible for your full retirement benefit (100%) based on your work record. If you were born between 1943 and 1954, your Full Retirement Age is 66. If you were born 1960 or after, your Full Retirement Age is 67. If you were born between 1955-1959, it is somewhere in between. This is because the Full Retirement Age is slowing going up from 66 to 67 and means many of us will have to wait longer to be eligible for our full benefit. My FRA is now 66 and 4 months. Go Figure!
Delayed Retirement Credits Why is your Full Retirement Age important? Filing before that time will decrease your payment amount. Filing after that date will increase your monthly payment. You can file for benefits as early as age 62, but your monthly payment will be reduced by about 30%. If you file after your Full Retirement Age, your monthly payment will increase 2/3 of 1% each month you delay. That comes out to about 8% a year. If you wait until age 70, or in Jane’s case, four years after her Full Retirement Age, that’s an increase of 32% in your monthly payment amount, which can be significant, and that lasts for the rest of her life.
Spousal Benefit A spouse is eligible for 50% of his/her spouse’s monthly payment amount if they have been married at least one year, be at least 62, and your spouse is collecting benefits. A divorced spouse is eligible if they had been married ten years or more, and the spouse need not be collecting. In Jane’s case, she was married more than 30 years before divorcing. She is eligible for spousal benefits, and because she reaches her Full Retirement Age before January 2020, she can take advantage of the Claim and Switch.
Restricted Application Jane will file a Restricted Application, which means she is filing for spousal benefits only, not benefits on her own work record. She will receive a monthly payment amount equal to 50% of her ex-husband’s full benefit for the next four years. During those four years her own benefit will increase by 32%. At 70, she will switch to her own benefit and receive a much more sizeable monthly payment for the rest of her life.
So, Jane is filing a restricted application for spousal benefits now and will begin receiving a spousal benefit the month after her birthday. She’ll receive that payment amount every month for the next four years. When she reaches age 70, she’ll refile and switch to her own benefit. She will now be receiving the maximum benefit available for her work record.
Since I’ve never married, I’m not eligible for a spousal benefit. Since I was born after January 1, 1954, the Claim and Switch doesn’t apply to me personally, but it could benefit many others. Everyone should get all to which they are entitled.
Not eligible? You didn’t lose anything. You’ll get the benefit you were always intended to get.
The point is if you qualify for this, now is the time to apply. Use it or lose it.
Next Time–Should you wait until 70 to file for benefits? I’ll discuss that in my next article. Keep an eye out.
More detailed information on all the topics mentioned above is in my book available here.