Last week I wrote about the way age differences can play an important role in thinking about the timing of Social Security old age benefit claims. Specifically, spouses need to take into account two separate variables: the increase in the primary worker’s old age benefit by delaying their old age benefit between ages 62 and 70, and the increase in the spouse’s benefit by delaying claiming their spousal benefit between ages 62 and the spouse’s full retirement age (67 for folks born after 1960). Logically, delaying a Social Security benefit claim should be based on the total benefit foregone and the corresponding total increase in future benefits across both claim types (if any).
There’s one additional nuance that I want to explore in more depth here: unreduced dependent benefits and the family maximum.
The now-defunct “file and suspend” scam
Until 2015, one of the most popular ways to maximize Social Security benefits was known as “file and suspend.” With this scam, one spouse would “file” for their old age benefit at exactly age 62, then immediately (this could be done in a single phone call) “suspend” their old age benefit, allowing it to increase at the legally specified rate until age 70 (or any time before then). The filer would never receive an old age benefit payment, but filing would entitle their spouse to claim their spousal benefit (appropriately reduced if claimed before full retirement age).
What tipped this over from scam to fraud, and finally drove Congress to close the loophole, was the fact that spouses could file what was called a “restricted application:” they would claim only their spousal benefit, while allowing their old age benefit to continue to accrue until the spouse turned age 70!
In 2015, Congress passed two fixes that elegantly ended this abuse, while leaving flexibility for those who want or need it in making Social Security benefit claims decisions:
- First, it is still possible to file for an old age benefit at any age after 62, and then suspend your claim as soon as you like. However, when a worker’s old age benefit claim is suspended, all spousal and dependent benefits are also suspended.
- Second, Congress limited (but did not eliminate — more on that in a moment) the ability to file a restricted application for spousal benefits. Now, when a spouse files for benefits on another worker’s record, they are “deemed” to file for their own old age benefit as well if they are at least age 62, which stops the clock on both the spousal and old age benefits’ legally specified increases.
To summarize: under the previous regime, if two spouses each have enough Social Security credits to claim an old age benefit, it was frequently possible to maximize the total benefits received by the household by delaying the actual receipt of each spouse’s old age benefit until each spouse turned 70, even while collecting spousal benefits. That opportunity is no longer available.
Late-in-life caretakers and the exception to deemed filing
Remember how Congress fixed the “restricted application” loophole: they said any spouse over the age of 62 claiming spousal benefits was “deemed” to also be filing for their old age benefit, stopping the clock on that benefit’s appreciation.
But what about spouses below the age of 62? They can’t be deemed to be filing for their old age benefit because they’re not yet eligible for their old age benefit. However, they’re also not eligible for their spousal benefit, so there’s no harm and no foul, with one big exception everyone should be aware of: the dependent-in-care rule.
To put it as simply as possible, spouses of any age are eligible to claim a full spousal benefit (50% of the worker’s primary insurance amount) while they are caring for a dependent under the age of 16 (or disabled dependents under certain conditions), and claiming that spousal benefit before the age of 62 is not deemed to be a simultaneous claim for old age benefits (at age 62 the deemed filing rule kicks back in).
If it helps you get your head around it, think of this as the “Donald-and-Melania” rule:
- Donald was eligible to claim his maximum old age benefit in June of 2016, at age 70;
- In June of 2016, Melania was just 46 — almost two decades away from eligibility for a spousal benefit;
- But in June of 2016, Barron, a dependent-in-care of Melania and Donald, was just 10.
Since Barron was under 16, Melania was able to file for her unreduced spousal benefit immediately without being deemed to file for her old age benefit, because she’s not eligible for her old age benefit yet. She is also free to continue to work and earn additional Social Security credits, increasing her own primary insurance amount.
As an underage dependent of a retired worker, Barron is also eligible for his own child benefit, also calculated as 50% of his father’s primary insurance amount (this amount is not augmented by delayed retirement credits or reduced by early retirement reduced benefits).
So far, so good, right? Donald gets 124% of his primary insurance amount for delaying his old age benefit until age 70, while Melania and Barron each collect another 50% of the PIA. When Barron turns 16, Melania’s benefits end (since she’ll be just 52), but Barron can collect his for another few years as long as he stays in school.
No so fast.
The family maximum
It’s all fun and games playing around with Social Security benefit calculators, until you run into the family maximum: the most a worker, spouse, and dependents can receive on a worker’s earnings record. You can look at the formula for yourself, but as it’s pretty inscrutable, I’ll just share the four easiest 2021 datapoints:
- a worker whose primary insurance amount falls under first Social Security “bend point” of $1,272 has a family maximum of 150% of their primary insurance amount;
- a worker whose primary insurance amount is exactly $1,837 has a family maximum of $3,449, 188% of their primary insurance amount;
- a worker whose primary insurance amount is exactly $2,395 has a family maximum of $4,193, 175% of their primary insurance amount;
- and the maximum primary insurance amount in 2021 is $3,115, producing a family maximum for that worker of $5,449, 175% of their primary insurance amount.
The family maximum starts steady at 150% of the worker’s PIA, gradually rises to 188%, then gradually falls to 175%, where it remains until the maximum PIA is reached.
If you don’t understand this mechanism, you cannot make appropriate old age benefit claiming decisions. There’s no one right way to claim your Social Security benefits, but there is one wrong way: not knowing how they’re calculated.
Alongside the changes Congress made in 2015, the family maximum imposes a hard cap on how much Social Security benefits can be gamed. While there aren’t any hard and fast claiming rules, some obvious suggestions fall out of the design of the program:
- a worker over the age of 62 should “almost always” claim their old age benefit immediately if they have one or more dependents under the age of 18-19;
- a worker over the age of 62 should “always” claim their old age benefit immediately if they have one or more dependents under the age of 18-19 and a spouse under the age of 62;
- after a worker’s spouse turns 62, if a worker is under age 70 they should “consider” suspending their old age benefit in order to allow both the worker’s old age benefit and the spouse’s spousal benefit to increase at the statutory rate, until the worker reaches age 70 and the spouse reaches their full retirement age or age 70 (depending on their respective earnings histories).
A final note I want to make as clear as possible, these age differences and family structures have virtually nothing to do with the sybaritic impulses of our tiny ruling class; the overwhelmingly more common experience is grandparents or other relatives caring for children whose parents have died or disappeared. Especially now that the glaring file and suspend loophole has been closed, we should be encouraging retired care providers to maximize the benefits they are receiving, both for their own well-being and for every generation of Americans to come.