May 4, 2019 — Were you born before Jan. 2, 1954? Are you married? Not already claiming a Social Security retirement benefit?
If you answered yes to all of these questions, time is running out on a very valuable Social Security claiming strategy, the Restricted Benefit option. In brief, this option allows you (or your spouse) to collect a spousal Social Security benefit while preserving the right to collect on your own benefit later. If you turn 66 this year, now is the time to think about taking it.
The key point for eligibility to take the Restricted Benefit is being born before Jan. 2, 1954. If you were born after that date, the term “deemed filing” applies to you when you apply for Social Security retirement benefits, and you are not eligible for the Restricted Benefit option.
In addition to your birth date, the two additional questions we asked at the beginning also apply. Are you married? If you are not, it doesn’t work because you have no spouse to claim a spousal benefit on. If you are already receiving Social Security benefits, it is too late to reverse that decision. So you answered yes to all three questions – great – the Restricted Benefit might be for you.
But first, a little background.
2 big changes were made to Social Security in 2016
Changes to two Social Security claiming strategies went into effect on April 30, 2016. They affected the way many sophisticated retirees maximized their Social Security benefits. The changes affected these claiming strategies:
– File and Suspend. Forget about this one, it is not available to anyone not already using it by April 30, 2016
– Restricted Benefit. Available to anyone born before Jan. 2, 1954. For the record, if you were born before that date you are already at least 65 years old. At age 66 (your Full Retirement Age – FRA) you get the maximum advantage from the strategy, but as you get closer to age 70 the advantage of this option evaporates. So if you were born in 1953, this is the year to take it.
How does the Restricted Benefit work?
Restricted Benefit. To take this option when you file for Social Security you must specify that you are filing a Restricted Benefit. This means that you are claiming a spousal benefit based on your spouse’s earning record, not on your own. To be eligible, your spouse has to also be receiving benefits, and you have to be at least at your Full Retirement Age.
The advantage of using this strategy is that you not only get some benefits now, but your own primary benefit increases by 8% a year up to age 70. Basically you are giving up very little to get 4 years of spousal benefits now. When you reach 70 (or if you decide to claim earlier on your own record) the Social Security Administration will determine which benefit is higher, the one based on your own earning record or the spousal benefit you have been receiving. Then it will pay you whichever is higher. The restricted benefit is not available to people born after Jan. 2, 1954.
Let’s say that you meet the three requirements for the Restricted Benefit. Should you use it? In most cases the answer is probably yes, depending on you and your spouse’s ages. To use this option one of the spouses has to have filed for Social Security retirement benefits on their own record. The spouse filing the Restricted Benefit needs to be at least at their FRA. If the spouse who files on their own is younger than their Full Retirement Age (FRA – 66 for people born before 1955 and gradually increasing after that), it might make more sense to wait because the filing spouse will get a lower benefit for the rest of their life.
Will it make a difference? Kiplinger cites this example of how the restricted benefit might be useful. One earner in a couple expects a benefit of $2200/month at FRA, while the spouse qualifies for $1400. If the higher earner takes the restricted benefit, she qualifies for $700/month and receives that for 4 years. At age 70 she would now be eligible for $2904/mo., so the couple now receives $4304/mo. for the rest of their lives.
The other practical factor that applies is which spouse should use the Restricted Benefit, and which should file on their own earnings record. Generally, the lower earning spouse should file on their own, giving the one with higher earnings the chance to maximize their own benefit beyond their Full Retirement Age and up to age 70. Needless to say this is a complex decision, and one that you should take carefully after consultation with a financial professional and/or your Social Security office.
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, deemed filing rules will not apply if you file at FRA 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. 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.
File and Suspend. This now defunct 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.
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. 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). In this article we have tried to present information to help you understand the issues involved, but 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.
Comments? Have you taken advantage of the Restricted Benefit, or are you thinking about it? Please share your thoughts in the Comments section below.