social security

Are your Social Security strategies up to date?

Believe it or not, a bipartisan federal budget deal might affect your retirement planning strategies.

The Bipartisan Budget Act of 2015, signed into law last November, eliminated two Social Security claiming strategies that have been used by many people to maximize their benefits. Depending on your age, though, you might still be able to use these strategies.

The file-and-suspend strategy

The first strategy, known as file-and-suspend, has been used mainly by married couples, especially if one spouse has earned substantially more than the other. Upon reaching full retirement age, the higher-earning spouse files for Social Security benefits and then suspends receipt of the benefits until later — usually, until age 70.

As a result, this spouse will receive delayed retirement credits totaling 8% per year, or 32% if he or she waits until age 70 to receive benefits. In addition, the lower-earning spouse can receive spousal benefits based on the higher-earning spouse’s earnings record if they are more than his or her own benefits. In general, these benefits are equal to 50% of the higher-earning spouse’s full retirement amount, assuming the higher-earning spouse has reached full retirement age.

The budget act makes a subtle but crucial change to this rule: Married individuals can no longer receive a benefit based on their spouse’s earnings unless the spouse is actually receiving those benefits. This effectively eliminates the file-and-suspend strategy.

Fortunately, the law contains a provision that grandfathers in anyone who is currently using file-and-suspend. You also can use file-and-suspend if you will reach age 66 before May 1, 2016, and file to claim benefits by this date.

The restricted application strategy

The second Social Security claiming strategy affected by the budget act is known as “restricted application.” Here, a spouse reaching full retirement age who is eligible for both retirement and spousal benefits files a restricted application for spousal benefits only. At this time, the spouse delays applying for his or her own benefits, but can switch and start receiving these benefits later.

Using this strategy, a higher-earning spouse can claim 50% spousal benefits upon reaching full retirement age instead of taking his or her own benefits, thus enabling these benefits to continue to grow. The lower-earning spouse doesn’t have to have reached full retirement age.

When the higher-earning spouse starts receiving his or her own benefits, the lower-earning spouse can switch to a spousal benefit based on the higher earner’s benefits at full retirement age. Using this strategy, some married couples have been able to increase their Social Security benefits by tens of thousands of dollars.

The budget act is phasing out the use of the restricted application strategy. If you’ll turn 66 before May 1, 2016, you can file a restricted application anytime between ages 66 and 70. If you turned 62 before the end of 2015, you can file a restricted application for spousal benefits when you turn 66 so long as your spouse — or, if you’re unmarried and meet certain other criteria, your ex-spouse — is at least 62.

A fresh look

These changes make it critical to take a fresh look at your Social Security claiming strategies, especially if you fall within the age ranges outlined here. Contact your financial advisor to discuss your situation in more detail.

© 2016

Changes to Social Security Benefits

by Karen Atchley, CPA

Partner at Atchley & Associates, LLP

 

THIS IS SOMETHING THAT MAY BE OF INTEREST TO YOU.  I am not a social security administration expert by any means but I noticed this law change  may affect you or your spouse based on your ages.  You can contact the social security administration  if you want more information, I can give you the name of a person to consult with who does hold themselves out as having experience in this area.

Under the new Social Security rules included in the Bipartisan Budget Act of 2015, the ability to temporarily claim just spousal benefits is being phased out.  Married people or divorced spouses who are 62 or older by the end of 2015 will retain the right to claim only spousal benefits at age 66, ONLY if their spouse has filed for benefits.  The way I understand it, those 66 or older MUST file for benefits by April 30, 2016, even if they want to immediately suspend getting current benefits until a later time in order for his/her spouse who is or will be 62 years of age by the end of 2015 (or other eligible family member) to claim spousal benefits.  If the spouse who is 66 years of age has not filed for benefits by April 30, 2016, then their spouse will not be able to file for spousal benefits until their spouse starts receiving benefits.

Below is a bullet point of the basics:

  • At age 66 one spouse can file for social security benefits but suspend payment.  This allows their benefits to grow by 8% per year so that when they do begin taking payments later, say at age 70, their benefit will be larger.
  • The alleged “loophole” was that a family member could claim social security benefits based on the earnings of the person who has filed and suspended their benefits, so the household could still receive a benefit payout while at the same time taking advantage of the 8% growth of benefits for the spouse who filed-and-suspended.
  • What’s changing is that after May 1, 2016,  a family member can no longer claim benefits against the file-and-suspend spouse’s social security unless that spouse also receives payment of his/her benefits.  In other words, if the spouse suspends payments, family members cannot collect benefits while payments are suspended.
  • Anyone who is already age 66 and using this strategy/”loophole” will be grandfathered, but anyone who wants to begin implementing this strategy must file-and-suspend by May 1, 2016, assuming they will be at least age 66 by then.
  • Another strategy is the restricted application approach where a spouse who reaches full retirement age at age 66 can file an application to only collect their spouse’s benefits.  This allows their own benefits to essentially be suspended and earn delayed credits (a premium for taking your benefits later, up until age 70).  This is also changing – in order to take advantage of this strategy, if a spouse will turn age 62 before the end of 2015, that spouse can begin collecting his/her benefit while the other spouse files a restricted application and chooses the spousal benefit.  If not 62 before the end of 2015, the “restricted application” strategy will no longer be available.