Ted and Martha Jones know, unfortunately, all too much about disability. Ted became disabled at 45 due to a traffic accident. While he can’t work, his maximum age of life hasn’t changed. Ted’s now 65 and Martha’s 62. Ted’s collecting $2,000 per month in disability insurance benefits. Martha’s thinking of applying for her retirement benefit right away and waiting until full retirement age (FRA) to collect her spousal benefit. Her full retirement benefit is $1,250 per month.
What Martha wants to do and can do are two different things. If she files for her retirement benefit, she’ll be deemed to be filing for her spousal benefit as well. The reason is that for purposes of deeming, Social Security treats a spouse (Ted in this case) who is over 62 and is collecting disability benefits as having filed for a retirement benefit.
If Martha does what she plans, she’ll receive only her retirement benefit because her excess spousal benefit will be set to zero (because her spousal benefit is less than her retirement benefit). For spouses of disabled workers, the excess spousal benefit is calculated based on the difference between half of the disabled worker’s disability benefit and 100 percent of the spouse’s own full retirement benefit. For Martha, this amount is negative, making her excess spousal benefit equal to zero.
If Martha follows her game plan and Ted continues to receive his disability benefit after reaching FRA — at which point, its name will change automatically to a retirement benefit — the couple will have lifetime benefits of $915,551.
But they can do better. At FRA (66 in this case), Ted can withdraw his retirement benefit (withdrawing is not the same as suspending) and start it up again at age 70 at a 32 percent larger value, after inflation. And Martha can wait until FRA and collect a full (as opposed to an excess spousal benefit) through age 70 and then switch to her retirement benefit. This strategy will produce $244,979 in higher lifetime benefits!
