Spousal strategy fits couple’s goals

Ron and Lindy Cater of Spokane walk their dog, Zoe, around Cannon Hill Park on Feb. 18. (Jesse Tinsley)

Course reversal allows Caters to max benefits

Ron and Lindy Cater’s retirement appears to have resulted from a carefully planned and well-executed strategy.

But, as Ron Cater said, “Part of it was maybe kind of dumb luck.”

Cater retired from Spokane’s Central Pre-Mix at age 58, after 37 years of employment. The company’s chief financial officer, his move was prompted by its acquisition by a foreign multinational. Once retired, Cater researched the best strategy for accessing his Social Security funds.

“I had four years to eligibility and had this retirement money all rolled over into a traditional IRA,” he said. “I began calculating the break-even point for taking my Social Security at 70, which would have been around 82 or 83.”

(The break-even point comes when retirees will have received the same amount of lifetime Social Security benefits, no matter when they started.)

So instead, Cater began drawing on his account at 62, four years before full benefit retirement age. Lindy Cater, who is three years younger than her husband, worked until she was 59, when she retired from the Girl Scouts. At 62, she began drawing early retirement benefits.

Three years later, Ron Cater saw his mistake. By drawing benefits early, he had limited both his monthly payout and the total lifetime benefits for which he and his wife would be eligible.

Instead, he realized, he could have chosen to defer his own benefits to age 70, when he’d be eligible for 132 percent of his full retirement benefit. In the meantime, he would collect spousal benefits on Lindy Cater’s account.

Using this strategy, Lindy Cater would continue drawing on her own account until Ron Cater turned 70. She would then switch accounts and begin drawing spousal benefits on his account, earning a higher payout than what her own account provided. More important, should Ron Cater die first, she would become eligible for his full monthly benefit.

At this point, fortune played a hand. Until 2010, Social Security recipients were allowed to repay, without penalty, funds they had previously withdrawn. (The provision has since been modified to allow repayment only within the calendar year in which the withdrawals are made.)

The Caters reversed course. They repaid three years worth of benefits, and Ron Cater began drawing his spousal benefits. At 66, he was then at full retirement age and his replenished account was fully funded and began growing at 8 percent per year, as it will until he turns 70.

Today, Cater admits even the best laid plans sometimes can benefit from a bit of luck. He also urges other retirees to continue to re-evaluate their plans.

“If I had not continued to review my options, I would never have known about the ability to repay the prior benefits,” he said.

Couples with benefits

Couples considering retirement should carefully investigate the best way to maximize their Social Security benefits.

In most cases, a marriage of 10 years is sufficient to establish spousal benefits, whether the couple remains together or not. To receive spousal benefits, the spousal-benefit recipient must be at least 62, and the primary account holder must be retired.

Generally, the spousal benefit is half that of the primary account holder’s.

For instance, if Spouse One begins drawing a monthly benefit of $1,000, Spouse Two qualifies for a $500 spousal benefit.

Under the so-called age 62/age 70 strategy, a lower-earning Spouse One can retire at age 62, while the higher-earning Spouse Two can delay drawing his benefits to age 70.

When Spouse Two starts drawing Social Security, he qualifies for 132 percent of his full retirement benefit, because he delayed his retirement age from 66 to 70. Spouse One then switches from her account (which paid lower benefits because she earned less and took retirement at 62) to Spouse Two’s account and earns 50 percent of his full-retirement-age benefits.

Sound a bit confusing? It can be. That’s why couples nearing Social Security benefits age should do diligent research and/or consult a financial planner with Social Security expertise.

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