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Thanks to provisions in the federal budget signed into law late last year, some changes are coming to strategies that couples have used in the past to maximize Social Security retirement benefit payments. For some people, strategic planning may have added up to tens of thousands of dollars in additional benefits over their lifetimes. Now, with the change in the law, they should consult with their financial adviser or a qualified elder law attorney to discuss how the changes may affect them, and what they can do about it.
The Benefit of “File and Suspend” Comes to an End
Under the prior law, you are able to file for Social Security benefits when you reach the current full retirement age of 66, and then suspend your benefits, while your spouse begins to receive spousal benefits. You then delay receipt of your own benefits, allowing the accumulation of delayed retirement credits up until the age of 70. When you do begin taking benefits, your check is larger thanks to these accumulated credits. This strategy is commonly referred to as “file and suspend.”
Under the changed law, you can still file for Social Security at full retirement age and suspend receipt of benefits. However, your spouse will not be able to receive spousal benefits until you are actually receiving benefits yourself. Likewise, dependents such as minor and disabled children cannot receive benefits based on your Social Security during any period of suspension.
This law takes effect on April 30, 2016. If you are, or will be, 66 before that date, you may still “file and suspend” prior to that time, enabling your spouse to receive spousal benefits while you defer receipt of benefits. The change in law will not impact you if you have already filed and suspended under the prior law.
Claim Now, Claim More Later? Not Anymore
Another widely used strategy, often called “Claim now, claim more later” was also eliminated as part of the new federal budget agreement. This strategy involves two spouses with disparate levels of earned income. Spouse A is higher-earning than Spouse B. At full retirement age, Spouse A applies for spousal benefits based on Spouse B’s record. As in “file and suspend,” this allows Spouse A’s own retirement benefit to increase. When Spouse A turns 70, she stops receiving the spousal benefit and begins receiving benefits based on her own record instead.
Survivor’s benefits are an exception: surviving spouses will still be allowed to claim survivor’s benefits first, and then, later, switch to retirement benefits if that option offers a larger benefit.
The new law eliminates the ability of workers who were younger than 62 at the end 0f 2015 to apply this strategy. (If you were 62 or older as of December 31, 2015, you can still select which benefit — spousal or personal — to take when you reach full retirement age.) If the new law applies to you, when you apply for spousal benefits, Social Security will make the assumption that you are also applying for benefits on your own record. You may still choose to take the higher benefit, but you cannot choose to receive a spousal benefit now, allowing your own retirement benefit to increase, then switch over to receiving your own benefit at age 70.
Survivor’s benefits are an exception to this change in the law. If you are a surviving spouse, you will still be allowed to claim survivor’s benefits first, and then, later, switch to retirement benefits if that option offers a larger benefit.
If you want to verify your earnings and receive an estimate of your future Social Security benefits, you can do so by establishing a secure online account through the Social Security Administration website. If you’d like to learn more about what the 2016 changes to Social Security claiming strategies means for you, we invite you to contact us to schedule a free initial consultation.