Two Social Security Strategies to Help You Pay Bills Now Without Sacrificing Later

Cynthia Blackburn assumed in March that by now the corporate conferences and weddings that are crucial for her small photography business in Houston would have returned. But demand remains thin amid the pandemic, and the Paycheck Protection Program funds that paid her four employees for about three months are gone.

If there is no relief soon, Blackburn figures that she will have to give up on her business, look for a job, and, if that fails, perhaps claim Social Security at age 62.

Like many baby boomers working before Covid-19 hit, Blackburn had intended to work past Social Security’s full retirement age of 67, if not until age 70, when benefits max out. Yet many workers close to retirement now find themselves out of work or with sharply reduced income. So, taking Social Security sooner than expected suddenly looks like a solution, although the long-term impact of taking sharply reduced benefits so early worries them.

There are, however, strategies that will help many people pay bills now and continue to preserve the option of maximizing Social Security at full retirement age or even age 70

For single people like Blackburn, filing for Social Security at 62 could be a short-term solution to get through a period without income. But it doesn’t have to mean retiring permanently and giving up sizable Social Security benefits for life.

Instead, if Blackburn’s income starts flowing again in a few months, she can withdraw from Social Security, says Laurence Kotlikoff, a Boston University economics professor and president of Economic Security Planning. She would tell Social Security to stop her monthly checks, and she could pay back the few she received if she has the money. Then she could work until 67 or 70 the way she had long intended.

If she can’t pay back the early Social Security benefits she took before returning to work, Social Security will just reduce her checks slightly at full retirement age—a small impact compared with retiring at 62 and never working again. “People think it’s a mistake to file for Social Security at 62, but it’s only a mistake if you don’t go back to work,” Kotlikoff says.

For baby-boomer couples, the options can be even better. If both spouses have worked, and one is at least of full retirement age and the other at least 62, they may be able to use a little-known strategy known as a “restricted application” for Social Security. It’s a way for a couple to get two Social Security checks every month early in retirement while waiting for an even bigger Social Security check to start after the higher-paid spouse turns 70.

To partake, the higher-paid spouse must have been born before Jan. 2, 1954, which means almost age 67 or older now. The lower-paid spouse could be as young as 62, which is the earliest opportunity for people to take Social Security benefits. (This restricted-application strategy is somewhat similar to the “file and suspend” strategy that Congress eliminated in 2016 because it was considered overly generous. The restricted-application strategy is being shut down for those born after the January 1954 cutoff.)

Under the restricted-application strategy, the spouse who earned the least during his or her career files for Social Security as early as age 62 (though it might pay to wait). The other spouse must be of at least full retirement age—currently approaching age 67 or older—and still waiting to file for Social Security.

Given common gender pay differences, the wife often is the lowest paid, and consequently the first of the two spouses to file. Once she does, her husband, if about 67 or older, uses a restricted application—telling the Social Security Administration that he doesn’t want to start collecting his own Social Security until perhaps 70, but immediately wants to start getting monthly checks as his wife’s spouse.

With two Social Security checks coming into the household as early as possible, the couple can cover bills immediately while taking advantage later of even-bigger monthly checks at age 70 and throughout the rest of retirement. At 70, the husband will tell the Social Security Administration that he wants to stop getting paid as a spouse and requests his own benefit.

If he dies before his wife, the strategy will enlarge her survivor benefit greatly.

Peter Murphy, a financial planner in Santa Fe, N.M., recently used the restricted-application strategy for a couple worried about the impact of Covid-19. His client, Janet, 62, was afraid to keep working as a nurse in a hospital because she feared infecting her husband, Howard, 68, who has a high-risk medical condition. Until the Covid-19 threat, she had planned to work until 67, while Howard would work until 70 and then take the maximum Social Security possible.

Instead, Murphy advised Janet to quit her job and file for Social Security—$1,183 a month. Howard then filed a restricted application that delays his own benefits until age 70, but seeks Social Security benefits as Janet’s spouse. He gets $826 a month—half of what Janet would have received at full retirement age. When Howard turns 70, their income will go up after he switches to his own maximum benefit of $3,605. What’s more, Janet then could return to a well-paying job, if she desires. With paychecks exceeding earnings limits, that would stop the clock on receiving her Social Security benefits and allow them to inflate again for the future—enhancing the couple’s income.

Regardless of whether Janet goes back to her nurse’s job, or simply decides to stay retired from age 62 onward, the restricted strategy that she and Howard are using could be invaluable for income as she ages. If Janet outlives her husband, delaying Howard’s own Social Security until age 70 will help considerably because he earned a lot more than she did while working. If he dies at age 85, Murphy estimates that Janet will get $4,852 a month as Howard’s survivor instead of the $1,624 she would have received on her record alone.