How This Couple Gave Away $50,000 in “Free” Money

By Jeffrey Levine, Director of Retirement Education
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Meet Dan and Barbara. They’re incredibly special people, but there’s nothing particularly special about them, if you know what I mean. They are good, honest folks, who are hoping to retire soon and begin the next chapter of their life.

Dan is – and has always been – the family’s breadwinner. He’s “never raked in the big bucks,” as he likes to say, but he’s always earned a nice salary. As a matter of fact, when Dan turned 66 in March, he would have been entitled to a $2,500/month Social Security benefit. Having read up on Social Security rules and strategies over the years, however, Dan decided to delay applying for Social Security so that he could maximize the survivor benefit for Barbara – who was a stay-at-home mom and will turn 66 in September – in the event that he predeceased her.

Fast forward to May 2016, when Dan, Barbara and I met for the first time. A quick, cursory review of their tax return shows no Social Security income on either Line 20a or 20b of their tax return. Nothing inherently wrong there and, in fact, given the circumstances, it was probably a good thing. Unfortunately, however, although Dan thought he was making all the right moves, he made one critical mistake.

He didn’t start his “verification process,” as he called it, sooner.

Dan, you see, was lucky enough to turn 66 prior to April 30, 2016 and, as a result, had the good fortune of being able to file-and-suspend his Social Security application after reaching his full retirement age (66) in March, but before the critical April 30 date. Doing so would have allowed him to continue receiving delayed credits and increase his own retirement benefit (and Barbara’s survivor benefit), while simultaneously allowing Barbara to claim a spousal benefit based on his earnings history.

But as you might have already surmised, Dan did not do that.

Despite Dan’s fairly strong comprehension of retirement planning concepts and strategies – especially for a non-professional – he had inadvertently confused several aspects of the new Social Security rules created by the passing of the Bipartisan Budget Act of 2015. The way Dan had understood the many articles he’d read on the subject, there was no benefit to him filing-and-suspending by April 29, 2016 because Barbara isn’t going to be 66 until September. That error, unfortunately, cost Dan and Barbara over $50,000 of “free” Social Security retirement income.

Had Dan filed-and-suspended prior to April 30, 2016, Barbara could have claimed a spousal benefit at 66 – or now for that matter. Since he did not do so, however, Barbara must now wait until Dan begins receiving his retirement benefit – which won’t be until he turns 70 – to begin receiving her spousal benefit.

At roughly $1,250 per month of foregone benefits between now and Dan’s 70th birthday in March 2020, that equates to well over $50,000 of income that is now lost because of nothing more than complacency.

And that’s really the moral of this particular story. There are few things that I find more frustrating than having to tell someone that “it’s too late.” Just like Dan and Barbara, it’s too late for you to utilize the file-and-suspend technique, but there are virtually always available strategies that have some sort of deadline attached to them. So if you don’t want to find yourself in Dan and Barbara’s predicament, just follow this easy 3-step process.

  1. Start planning for your retirement now – There really is no time like the present when it comes to your retirement.
  2. Get educated – Dan’s problem wasn’t reading too much. That was great. It’s always a good idea to do your own homework, but that doesn’t mean that you should forget about step 3!
  3. Be humble and seek help – I eat, sleep and breathe retirement, and I still learn something new just about every single day… and I reach out to others for feedback all the time.

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