By Dennis Kagel, Chartered Financial Consultant
On November 2, 2015, a budget bill was signed that included restrictions on some Social Security claiming strategies, known as file and suspend and restricted application. These strategies have become increasingly popular of late, and now the idea is to close some “unintended loopholes” that existed under old law. For 15 years, these have been available, and now they are being killed or curtailed. Interestingly, experts say that only a tiny fraction of beneficiaries actually take advantage of these strategies. In fact, AARP publicly endorsed the measures, in part because so few did.
No public hearings were held, and there was never any specific Social Security legislation introduced. It was merely swept in as part of the big picture budget agreement.
File and Suspend – Changed, But Not Retroactively
Current law allows anyone reaching full retirement age (FRA), based on birth year, to file for benefits, and then suspend receiving them to continue earning delayed retirement credits (DRC), up to age 70. Social Security benefits increase eight percent per year from age 62 to 70. At the time of filing, that person’s spouse could begin collecting spousal benefits. This could mean thousands of extra Social Security dollars for a married couple. For example, say a husband, age 66 (FRA for many baby boomers), files and suspends; and his wife, also age 66, applies for a spousal benefit. The wife would receive approximately 50 percent of the husband’s FRA monthly benefit, AND both the husband’s and wife’s personal benefit would continue to increase until they are age 70. If this amounts to $1,000 per month, the wife would receive an extra $48,000 from age 66 to 70. At 70, both the husband and wife could switch over to their own benefit.
Those currently receiving benefits using the file and suspend strategy will continue receiving benefits, AND anyone who elects to do so in the next six months will be eligible to receive the extra benefits; but after April 30, 2016, it can no longer be used to trigger a spousal benefit or child’s benefit.
Restricted Application (Spousal Only)
Anyone at least full retirement age can file to receive either a benefit based on their own work record, or for a spousal benefit. Prior to full retirement age, the benefits are blended. Under the new rules, the ability to choose which benefit you want to receive goes away at full retirement age, and everyone receives the blended benefit. The rules affect anyone who isn’t 62 by the end of 2015.
Divorced Individuals
Watch for further possible clarification of these changes, as some experts believe a “fix” is required in the file and suspend language in order for divorced spouses to be able to receive benefits, if their ex-spouse suspends.
Conclusion
Electing the right Social Security strategy is tricky! Most people take little time to become informed about all their options (There’s 81 different possible combinations based on a couple’s age alone). When you add in all the “special options,” the number is in the hundreds! Most people just take Social Security at 62 or 66, thinking that it doesn’t make much difference. Selecting the right age and strategy would amount to $700,000 of additional benefits for a couple (Assumptions: both working and both age 61 presently, wife lives to 95, husband dies at 80, wife earns $53,000 & husband earns $84,000).
Social Security planning is one of the most important financial decisions you’ll make in your lifetime. You have one chance to get it right! The clock is ticking! Don’t lose out on benefits you’re entitled to.
To receive your free Social Security Maximization Report, give Dennis Kagel a call at 309-454-9171, and they’ll prepare one for you. Social Security is an important part of overall retirement income planning, so he’s developed a special website, www.denniskagelss.com, totally dedicated to the subject of Social Security planning. You may go to that website and view the brief educational video presentation.
Sources available upon request.
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