Social Security 2017 Update: Part 2

Category: Financial and taxes in retirement

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.

Bottom Line
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.




Posted by Admin on June 26th, 2017

24 Comments »

  1. I just filed at the age of 62. I couldn’t wait because I needed the money to help with caring my mother who has dementia. And now with Trump care it looks like there will be many more families having to care for their elderly parents with Medicaid being slashed. It’s like a bad dream . I can’t believe how unfeeling this administration is to the elderly!!

    by mary11 — June 27, 2017

  2. Thank you for a very helpful, informative explanation of these SS benefit quirks.

    Question: On Restricted Benefits, let’s assume spouse B wants to file for 50% of Spouse A’s retirement. Must either or both of them be FRA (full retirement age) at the time of claiming?

    Thanks!

    by JCarol — June 27, 2017

  3. JCarol,
    This is my understanding, but would appreciate any members comments.
    I am 66. I plan on filing at age 67, which will be in February, 2018.
    My wife will be 65 in December. I believe that after I file and start collecting, she will then be eligible to take her spousal SS benefit when she becomes 66.
    That spousal benefit will be one half of what I would’ve gotten at age 66.
    She will then let her own SS benefit increase and shift from that spousal benefit to her increased benefit when she becomes 70.
    Don’t know if that scenario is helpful. I believe it is correct, but we will visit our local SS office to confirm.

    by Stevenk — June 28, 2017

  4. Thanks Stevenk,

    I rather think this is true, too. We’re looking at the opposite strategy. We were going to file on our 65th b-days when we became eligible for Medicare, but now are rethinking it.

    I’ll likely file on my 65th b-day and my (slightly younger) husband will file on his 66th for half of mine. Since he was the larger earner by about 20%, we’d let his benefits increase by 8% per year for a while. Maybe to 70, maybe not that long. Have to see how our finances and draws against savings/IRAs and minor income spin out.

    by JCarol — June 28, 2017

  5. Hi JCarol
    Here is a link from SSA.gov that may be give you some information

    https://faq.ssa.gov/link/portal/34011/34019/Article/3754/What-is-the-eligibility-for-Social-Security-spouse-s-benefits-and-my-own-retirement-benefits

    Hope this helps!!

    by Moderator Flo — June 28, 2017

  6. I’m 67 in a few weeks and still working FT. I plan to work one more year (my contract was re-upped last week) and claim Social Security (SS) at 68. I went to the local SS office and talked with someone about my options. He said that even if I file for SS, if I continue to work, my SS could be adjusted by the continued contributions I’ll be making as an employee. That means the SS distribution (I know it is called a benefit, but is it really? Didn’t I put money into the system so that it should be a distribution and not a benefit?) could increase with each successive year that I continue to work. This is a possibility as I may be contracted as a consultant with my current employer at some point, and then I’ll be responsible for my own SS contributions. Any ideas on this?

    by Elaine Cubbins — June 28, 2017

  7. Mandatory withdrawals:
    Does anyone have any advice for a strategy to reduce tax penalty on mandatory withdrawals at age 70 1/2 ? This is from 401K’s

    Editor Comment. The best strategy on RMDs (Required Mandatory Distributions) to avoid taxation is to use them to make your qualified charitable contributions. But you must ask whoever has your money to make the distribution to the charity directly – if it comes to you first it is taxable. https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras-distributions-withdrawals If your money is in a Roth IRA you are not required to take the IRAs.

    by Ron — June 28, 2017

  8. Thanks for all the great information. I have been following your information on SS for several years. With that said this is what I understand and plan to due.

    I just turned 65 in June and my wife is 63 and started collecting SS at 62 as she retired early at 60 and we needed her SS to cover our expenses until I file a Restricted application when I turn 66 next June 2018. If my plan is correct I should file a Restricted Application for Spousal benefits ONLY next year when I turn 66 in June of 2018. I have two questions on this whole process, what month due I start the process. Due I file 3 months prior to my June 2018 birthday or 3 months prior to July 1, 2018. My second question is if I file for my own SS at age 70 will my wife receive my $2,100 SS amount when I pass or some type of combination of her SS plus a little extra? Thanks!

    by Bob & Barb — June 28, 2017

  9. I worked for SSA for over 39 years. It makes no sense to me that only “file and suspend” was described as a quirk that gamed the system. Filing for a restricted benefit is gaming the system, too. The 8% per year from FRA to age 70 was intended to reward people who worked past FRA and didn’t receive SSA benefits of any kind. Unfortunately, the legislation says “not collecting retirement benefits.” Removing the reference to retirement was considered by Congress but never done. When Congress dropped the earnings test after FRA in 2000, they also considered dropping the 8%/delayed retirement credit, but didn’t. The restricted “strategy” helps people with higher incomes because most lower income people need to take the highest benefit payable and can’t afford to “game” the system.

    by Jean Holzhueter — June 28, 2017

  10. Our strategy is similar to StevenK’s. My wife and I are both old enough to take advantage of the Restricted Benefit. I will turn 70 in August of 2018. At that time I will file for my SS benefit. My first payment will be in Sept of that year. My wife turns 66 (her FRA) in Jan. 2019. At that time she will file for her Restricted Benefit and start receiving a spousal benefit (50% of my FRA benefit, not the age 70 benefit) in Feb. When she turns 70 she will file on her own record. At that time the SSA will pay her whichever benefit is higher – on her own record or the spousal. If I die first, she assumes my benefit, which will be higher than hers (because my earning record is higher).
    This strategy has the benefit of giving us 2 SS payments starting pretty close to when we file for the first one and then going on for almost 4 years. And by delaying claiming on her own benefit until age 70, she has the chance to maximize her own benefit too.

    by Ken — June 29, 2017

  11. Do states that tax some retirement income tax distributions from Roth IRAs since they are not taxed federally?

    by Jean — June 29, 2017

  12. Thank you for your help. My husband is 69 and started receiving his full benefits at age 67. I was born in 1956 and was a homemaker or self employed and as such did not contribute any amount substantial enough to make collecting on my own worth more than a couple of hundred per month. Since there is an 8 year age difference, I plan to file for my spousal SS when I am 62. When my husband passes I would then change to receiving my widows benefit. Your thoughts on this, please. Also if my husband passes before I reach full retirement age, am I able to continue to collect my spousal benefit and wait until I reach my full retirement age to collect a larger payout on my widows benefit? If you can please notify me when this is answered.

    by Mary Peshman — June 29, 2017

  13. On a slightly different note, do you have to go into a social security office to claim widow’s/widower’s benefits? I plan on claiming widow’s benefits at 65, and then waiting to claim my own benefits for awhile.

    by Kate — June 29, 2017

  14. Kate, my Mom went onto widow benefits at age 60 and I am positive she did it all on the phone. She had no computer and never drove out of our town that has no SS office.

    by louise — June 29, 2017

  15. Kate, while people can file online for widow/widower benefits, it’s best to file by telephone or in-person to make sure you fully understand your options if you are 62 or older and also eligible for retirement. The 8% delayed retirement credits between FRA and age 70 only apply to the retirement benefit, for example, but sometimes the widow’s benefit is so much higher that the 8% won’t make a difference. Unless you’ve already gotten detailed info from an SSA claims rep, file by phone or in-person to make sure you make an informed choice. You can call 1-800-772-1213 from 7 am to 7 pm Monday – Friday to make an appointment for a phone or in-person interview.

    by Jean — June 29, 2017

  16. Thanks very much! I did call SS and verified that my SS widow’s benefit at 65 and my own benefit at 66. If I wait to full retirement age, I’ll qualify for the maximum benefit (although in hindsight, I should have traded that all those years in a miserable career for more time with my family or for a job I enjoyed more. Every life decision has pros and cons.) The widow’s benefit is $200/mo less than my own benefit, so that’s going to be a good option for me.

    by Kate — June 30, 2017

  17. Dear Jean,

    My wife and I both are hard working and have worked over 70 years for SS benefits together. We each never made over $50,000 in any given year. I have the ability to use the Restricted application as my wife had to take SS at 62. My plan is to file for the Restricted application and not take my SS until 70 in hope that my wife will receive a higher amount when I pass. My retirement stops when I pass and the higher SS amount will allow my wife to pay the bills. With that said I don’t see us as people with high income or gaming the system.

    by Bob & Barb — June 30, 2017

  18. Well said, Bob & Barb. We’re in a similar boat but have no retirement pensions. Savings and SS only, but as we all know, SS ends upon death. We both put into SS for a long time. 91 years and counting between the two of us.

    We have pretty strong retirement savings plus term life insurance policies to blunt the loss of that second SS check if one of us passes soon. (We’re both in good health, but one never knows.) If we can delay one full check until age 70 by taking half of the other for 4 years, that will ease our situation.

    Like B & B, we didn’t have high earnings and will receive roughly average benefits. Are we gaming the system? Hardly. Oil companies, Wall Street and big banks game the system. People on SS figure out how to survive.

    by Jacksonville — June 30, 2017

  19. Hi Bob and Barb:

    I am also in the same boat –average earnings and savings is all I will have when I retire. I am divorced and my ex husband of 15 years was a Federal Government Employee under the old system- hired in 1979 and most likely has not paid into Social Security–so I do not know if I will be able to benefit from half of his check–or not. I only have myself to depend on and the divorce and 2008 caused a hit to my savings. I will get average benefits most likely even though my ex made a six figure income. I have never made close to six figures as a nurse.

    by Jennifer — July 1, 2017

  20. This is where I have got to ask… what if my wife don’t want to file for any benefits until she is 70 yrs old. She is the lower earner, and does not want to quit working. She is 2 yrs older than me… I want to retire at 65 yrs old when she is 67 yrs. What are the pluses and minus of this scenario? Both born after 1955.

    by William DeyErmand — July 2, 2017

  21. Hi William,
    You still have several years to look at the ins and outs of SS since you’re talking about starting benefits in 2020 or beyond. The SS website’s calculators give a good picture of what size checks to expect based on exactly when you begin drawing. https://www.ssa.gov/planners/retire/ is a good place to start.

    The longer you delay taking benefits, the higher your monthly check will be. That’s the plus. The minus is that you won’t be getting money from SS until you start taking the checks. (Duh. I know.) You’ll also have to look at how the combination of your wife’s earnings plus your SS will affect your income taxes.

    Something to consider: As many of us who are just a few years older have learned, when one plans to retire often doesn’t coincide with when one actually stops working. There are lots of moving pieces that may bring retirement forward, including health problems, family needs, desire for change, and RAMPANT ageism in the workplace (and elsewhere) that seems to increase exponentially each year after age 50.

    One other thing: I know a few couples with one spouse retired and the other still working. It can be a very challenging scenario with both members sometimes resenting the other’s status. The working spouse may resent the retiree’s freedom and expects the housework, cooking, shopping and other (normally shared) duties to fall on that member. The retiree may resent the anchor placed on his/her retirement by the spouse who still reports to work 5 days a week, 50 weeks a year. That spouse’s mental picture of retirement may not have included becoming a full-time housewife / househusband with a limited new life because the spouse declined to stop working.

    These issues can be worked out, but ’tis better to go into it with eyes wide open and expectations laid out on the table before proceeding.

    by Jacksonville — July 3, 2017

  22. I believe if you claim at your full retirement age then she can claim half of yours and then change it to hers at 70.

    by mary11 — July 3, 2017

  23. May not be the best option, mary11, if she wants to continue to work. Both were born after 1955. It is my understanding they would be under the new ‘deeming’ rules. If she claims a spousal benefit she will be ‘deemed’ and can not let her own benefit grow until claiming at 70. See the social security website: https://www.ssa.gov/planners/retire/claiming.html
    I’ve found the Maximize software invaluable for comparing different claiming strategies when there are multiple people involved. Seems $40 well spent. There are some small caveats, but it gives you easy reports to compare. It also will show you results of options the software would suggest, if you you want to get the maximum benefit over a lifetime. Each person has to evaluate it considering their own goals.

    by Kay — July 3, 2017

  24. Thank you, TR, for this article. I somehow never heard of the “Restricted Benefits” filing possibility until reading this blog post.

    We did some additional research into that option and have decided to employ this strategy for our SS benefits. We’re grateful that you shone some light on it as it will work well for us.

    Thanks again!

    by JCarol — July 6, 2017

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