June 26, 2017 — This is Part 2 of our “Social Security 2017 Update”. Here we will cover the changes to two popular SS claiming strategies that went into effect last year, and what you might do in response.
In Part 1 we explained how the Full Retirement Age (FRA) is gradually increasing for those born in 1955, eventually reaching age 67 for those born in 1960 or later. We also provided some strategies on how to make up for this delay and the slightly smaller benefits that come with it. Here is the link to Part 1, “What You Need to Know About Social Security in 2017“.
2 big changes to SS in 2016
Two Social Security claiming strategies went into effect on April 30, 2016 that changed the way many sophisticated retirees planned to maximize their Social Security benefits. Those strategies and the changes were:
– File and Suspend – not available to anyone not already using it by April 30, 2016
– Restricted Benefit – not available to anyone born after Jan. 2, 1954.
File and Suspend. This strategy allowed beneficiaries to “file” for their SS benefits, and then immediately “suspend” them. The benefit of this technique was to permit a spouse to receive spousal benefits, without the first beneficiary giving up the 8% per year increase in benefits they could earn by waiting up to age 70 to file. File and Suspend is no long available to anyone to didn’t take advantage of it by April 30, 2016 (it remains in place for those who did). The technique was viewed by many as a legal quirk that allowed people to game the SS system.
Restricted Benefit. This claiming strategy is slightly different from the above. In this case you don’t file for your own SS benefit at FRA. Instead, you claim a spousal benefit based on your spouse’s earning record. The downside compared to file and suspend is that to be eligible, your spouse has to also be receiving benefits. By using this strategy the person getting the spousal benefit can continue to let their own primary benefit increase by 8% a year up to age 70. This strategy is coming to an end however; the restricted benefit is not available to people born after Jan. 2, 1954.
Sounds complicated, is there anything to be done?
While the File and Suspend option is gone for good, you still have some options to consider, depending on how old you are and your personal situation.
1. If you were born before Jan. 2, 1954. You can still file a Restricted Benefit and take advantage of that option. It is a good option for people who have a spouse already receiving Social Security retirement benefits – it gives both spouses SS income without the spouse receiving the Restricted Benefit having to give up the increases they could earn by waiting to claim on their own record.
2. If you were born on Jan. 2, 1954 or later. The rules have changed, and they are not as advantageous to you as they were for your slightly older boomer brethren. Unlike them, you can’t have it both ways – get benefits now but let your benefit increase too. Because both the file and suspend and restricted benefit options are eliminated, the “when to file” choice is more difficult and permanent.
For post-Jan. 2, 1954 boomers, once you file for Social Security benefits the “deemed benefit” rule is in play. That means that SS will pay the highest benefit you are currently eligible for – either the spousal or on your own earnings record. That will be the benefit you get for the rest of your life (until your spouse dies, when you are eligible for their benefit). The decision is this – is it worth claiming now and getting a lower benefit for the rest of your life – or does it make sense to forgo claiming until your FRA or up to age 70, and get a much higher benefit? You can’t wait to have it both ways, like used be possible.
An illustration from the SSA.gov site
To help illustrate how the Restricted Benefit has changed for people of different ages we are reprinting a Q and A from the Social Security Administration website:
Q: Can I restrict my application for benefits and apply only for spouse’s benefits and delay filing for my own retirement benefit in order to earn delayed retirement credits?
If you turn 62 BEFORE January 2, 2016 (born before Jan. 2, 1954), deemed filing rules will not apply if you file at full retirement age (66) or later. This means that you may file for either your spouse’s benefit or your retirement benefit without being required or “deemed” to file for the other. In your case, you may also restrict your application to apply only for spouse’s benefits and delay filing for your own retirement in order to earn delayed retirement credits, allowing your own retirement benefits to continue to grow by 8% per year up to age 70.
However, if you turn age 62 on or AFTER January 2, 2016, you are required or “deemed” to file for both your own retirement and for any benefits you are due as a spouse, no matter what age you are. In that case you would be paid the higher of those amounts.
If you are old enough to take advantage of the Restricted Benefit option you should consider if it makes sense in your situation. If you are too young to use it, then you need to think about when to apply for Social Security. In your case filing too early might mean you end up with a benefit that is quite smaller than if you waited a few years. The decision can be complicated. A lot depends on how old you and your spouse are, the difference in your ages, your need for the money now, and how close you are to your FRA (where benefits are higher). You should use a financial advisor or some of the online resources such as are available at SSA.gov to figure out what is the right choice for you.
If you are single, divorced, or widowed the 2016 changes probably do not affect you as much, but are beyond the scope of this article.
For further reading
“Part 1: What You Need to Know About Social Security in 2017”
Social Security Q & A on Filing Changes
Social Security Legacy to Ex-Wives and Kids
How the New Social Security Claiming Rules Affect You
Comments? Has the elimination of the file and suspend and restricted benefits options changed your Social Security retirement claiming strategies? What are your plans – please tell us in the Comments section.