One of the most common questions in retirement planning is, “When is the best time to begin claiming Social Security benefits?” The variable that would lead you to the optimal solution is knowing when you will die. If we could all see into the future, financial planning would be significantly easier.
Social Security is structured so that benefits are “actuarially fair.” If you choose to take reduced benefits early, you are expected to receive the same amount over your lifetime that you would receive if had you opted to delay benefits, earning more at an older age. However, this assumes no spousal benefits are taken.
Couples whose financial advisers have put considerable effort into Social Security planning may be aware of or planning to use two claiming strategies that couples could use to boost their retirement income. However, Congress passed the Bipartisan Budget Act of 2015, which eliminated the File and Suspend and Restricted Application for Spousal Benefits “loopholes.”
For example, when a husband who was full retirement age filed for benefits, the File and Suspend strategy once allowed his wife to file for the spousal benefit, worth up to half of her husband’s benefit. The husband would then suspend his benefits, earning delayed retirement credits that would increase his benefit once he reinstated it. The wife would also earn delayed retirement credits on her own earnings record. Benefits increase by 8% a year after full retirement age. At age 70, a worker can receive up to 132% of his primary benefit.
However, with the passing of the Act, if an individual suspends his benefit, he can accrue delayed retirement credits, but neither spouses nor dependents can collect benefits based on that individual’s earning record during the suspension period.
Similarly, the Restricted Application loophole has been closed. Previously, at full retirement age, a married individual could file a Restricted Application for Spousal Bsenefits after the other spouse had filed for retired worker benefits. Using this strategy, a husband could collect spousal benefits on his wife’s earning record while delaying filing for his own benefit to accrue delayed retirement credits.
Now, if a married individual born in 1954 or later files a benefit application, the Social Security Administration will deem the individual as having filed for both worker and spousal benefits. Workers will no longer be able to file only for spousal benefits. They will receive whichever benefit is higher, so if one spouse was a homemaker while the other spouse worked, the spousal benefit is still an applicable option. The spousal benefit was always intended to benefit spouses with low to no earnings.
If you are already using one of these strategies, you can continue to receive your enhanced benefits. These new rules also have grandfathering provisions for those who are at least age 62 by the end of the year for the Restricted Application for Spousal Benefits and similar provisions for those 66 or will be by April 30, 2016 to use the File and Suspend strategy. A trusted financial adviser can help you determine if either of these strategies will work for your family.
If you have questions regarding how the Congress’ changes may affect your Social Security claiming strategy, the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166.
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