Q: I am approaching age 66 and my wife is almost 62. Each of us has a work record, although my earnings are greater. I heard that there may be a way for us to receive a larger Social Security retirement income by my opting for only a Spousal Benefit now based upon her work record. If so, how does that work?

A. Yes, you are correct. The key is for at least one of you to opt only for a Spousal Benefit on the other’s work record now, and for the other to delay beginning his/her own retirement, up to age 70 if possible. This approach generates an interim monthly Spousal Benefit “subsidy” for one of you, while permitting additional retirement credits to build up for the other, thereby increasing the amount of your later retirement income(s). The strategy is not well known, but derives out of the “Senior Citizen Freedom to Work Act of 2000″, apparently to courage delayed retirement. There are basically 2 techniques:

(1) “Claim Now, and Claim More Later (aka the “62/70 strategy”): here, your wife chooses Early Retirement benefits now at age 62 on her own account, and you then choose only a Spousal Benefit on her account but delay claiming on your own account until age 70. The amount of your Spousal Benefit would be equal to 50% of what your wife would have received as her own retirement benefit if she had waited to age 66 to start. For example: if she were eligible to receive $1,200 per month now, but $1,600 if she waited until her age 66, then your Spousal Benefit now would be $800. So, in this example she will now receive an Early Retirement benefit of $1,200 and you will receive a Spousal Benefit of $800 per month, for a combined total of $2,000 per month. This approach creates some retirement income for each of you now, while permitting you to claim a higher retirement when you turn age 70. However, your wife’s benefit will be permanently fixed at her start level, modified only by Cost-Of-Living Adjustments (“COLA’s”) over time.

(2) “File and Suspend“: here, you essentially both defer starting benefits on your own accounts. However, you employ the following procedural technique to enable your wife to claim a Spousal Benefit now on your account, as you are the higher earner: you first make a formal claim for benefits on your own account; next, your wife claims Spousal Benefits on your account; and, finally, you immediately request that your own benefits on your own account be suspended. By way of example,  if you would be eligible to receive $2,000 per month now at age 66, then by using this strategy your wife could receive a Spousal Benefit of $700 per month now, representing 50% of your age 66 benefit amount, reduced by another 30% for her early start at age 62. Thereafter, your wife would receive the monthly Spousal Benefit, up to her age 70 if she chooses. When each of you becomes age 70, each then starts full benefits on his/her own account. By the delay to age 70, your own benefit will then be 32% greater than if you had started at age 66 ($2,640 in our example).

Using these strategies (1) generates an interim Spousal Benefit monthly “subsidy” during the deferment period without reducing the level of the future retirement benefit for the spouse opting to suspend receipt of benefits on his own account, (2) boosts the amount of that later retirement benefit by deferred retirement credits; (3) once future payments do begin, the strategies create a larger monthly retirement upon which future COLA’s will be calculated , and (4) the larger deferred benefit preserves the highest possible income for the surviving spouse, as the survivor’s retirement income will be bumped up to the amount that the higher earner – even if deceased – would have received.

These strategies only work if at least one spouse is at the Full Retirement Age (65–67, depending upon year of birth) and the other spouse is at least age 62. They can work for one-earner couples and certain divorced spouses. Factors to consider include your ability to delay receipt of retirement income, your state of health and ages, and whether you plan to continue working. It has been estimated that at least 650,000 couples could benefit from these strategies and thereby generate $9.5 Billion per year in additional retirement income for their households.