with the history of lower earnings files a claim for social
security retirement benefits. The other spouse, after reaching
FRA, files for a spousal benefit, electing to defer his or
her worker benefit until age 70.
Here’s how the strategy works for private-sector workers.
Sam and Sally have always worked in jobs covered by social
security. Sam’s benefit at FRA is $2,000 per month, and
Sally’s is $800 per month. To maximize their benefits, Sally
claims hers as soon as she retires, but Sam needs to delay
his benefit until age 70, so he can accrue delayed credits.
Instead, at age 66, Sam files a “restricted application” for
a spousal benefit based on Sally’s earnings record. Sam’s
spousal benefit is $400 per month. At age 70, Sam contacts
the SSA and applies for a retirement benefit based on his
own earnings record. Due to his delayed retirement, his
benefit is now $2,640—a 132-percent increase over his
benefit at FRA. Once Sam files his claim, Sally is eligible
for a spousal benefit of $1,000, adjusted based on the age
she first claimed benefits. Over their life expectancy, by
delaying Sam’s benefits, the couple’s total cumulative
retirement benefits will be higher, ensuring that Sally also
receives the highest possible survivor benefit.
Now let’s revisit Jill and Jack.
The WEP reduces the
government worker’s social security benefit, as well as the
spouse’s benefit, since it is based on the worker’s benefit. It
can, however, still make sense for the spouse with the higher
social security benefit to delay claiming until age 70 and
instead file a restricted application for spousal benefits.
In Jack’s case, at age 66, he could receive a check for one-half
of Jill’s WEP-reduced benefit of $192, which works out to
$96 per month. Although WEP may reduce how much
Jack can receive as a spouse now, what’s more important is
that he is accruing delayed retirement credits
on his record. At age 70, Jack can claim his
own worker benefit, which will have grown
from $2,500 to $3,330 per month. Further,
claiming a $96-per-month spousal benefit
for four years would have no effect on Jack’s
future benefit, but if he didn’t claim it at his
FRA, it would be money left on the table.
Will Your Clients Have Less Income Than
They Planned For?
Clients with a history of working in both the public and
private sectors can find themselves in a tricky position
when it comes time to plan for income in retirement.
An understanding of the nuances of the WEP and GPO
can help you more accurately predict their cash flow and
make plans to fill any gaps that may arise.
Tere D’Amato is the vice president of advanced planning. She
is available at x9168 or at
commonwealth.com
For Advisor Use Only
15
The WEP cannot reduce the social security benefit to
$0, and it doesn’t apply if the worker has 30 or more
years of substantial earnings under social security.
Wealth Management
/ Planning
