Time to Review Social Security Filing Strategies

Time to Review Social Security Filing Strategies

Published Monday, November 23, 2015

In early November, Congress and President Obama signed into law the “Bipartisan Budget Act of 2015” that will change the strategies some retirees will use when filing for Social Security benefits.

File and Suspend.  Currently, a married person – typically the higher wage earner in a couple – who is at least full retirement age could file for his or her own Social Security benefits and then immediately suspend those benefits while the spouse could file for spousal benefits.  By doing this, the higher wage earner’s benefits would grow 8% per year.  In the meantime, the couple still gets a Social Security check, and down the road the surviving spouse could get a higher benefit.

That option is ending for new filers starting May 1, 2016, so if you are interested, now is the time to apply.  People already using this strategy will be grandfathered until age 70.

Restricted Application.  This is also being phased out.  Currently, individuals eligible for both a spousal benefit based on their spouse’s work record and a retirement benefit based on his or her own work record could choose to elect only a spousal benefit at full retirement age.  That would let them collect a higher benefit later on.

Under the new law, however, only those born January 1, 1954, or earlier can still use this option.  Anyone younger will just automatically get the larger of the two benefits.

Dependents.  The new legislation will impact dependents as well.  If your children receive a benefit based on your work record, your children will not able to receive benefits until you start receiving your benefits.

Divorcees.  The impact for divorced people is very similar to that for those who are married.  The important timelines are for those born before January 1, 1954 who still have access to the restricted application and those born after, who do not.

Widows and Widowers.  Planning for widows and widowers was not affected at all.  Widows and widowers will continue to have the opportunity to restrict an application to only widow benefits or only retirement benefits, and later switch to other benefits.

Planning Pays Off.  To be fair, you should not decide to claim early, or at FRA, or after FRA in the absence of a plan.  And with the change in Social Security laws, the need for such a plan becomes even more important.  People who are 62 to 70 will need to revisit their current plans for claiming and ensure they can be executed under the new rules.

Take Advantage of the Claiming Options You Still Have.  Married individuals are still eligible to claim payments worth up to 50 percent of the higher earning spouse’s benefit, if that amount is higher than payments based on the lower earning spouse’s work record.  And widows and widowers inherit their spouse’s benefit payment when it is higher than their existing benefit.  All workers also have the option to increase their monthly Social Security payments by delaying claiming them up until age 70.  Most of the gain is really from delaying.  The real advantage is still there, which is being patient.

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