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Reminder: Social Security Changes Ahead

Time is running out for you to make use of either the “file and suspend” or the “restricted application” Social Security strategies.  Both of these strategies are being retired. 

 

The file and suspend strategy (for single earner couples) ends as of April 29th, 2016.  The restricted application strategy (for dual earner couples) is no longer available for those who attain age 62 after December 31, 2015.  In order to determine if one of these strategies might be right for you, read on about the ensuing changes and relevant age restrictions.

 

End of File and Suspend

The “file and suspend” strategy allows a retiree to file for Social Security benefits at full retirement age and then suspend the benefit in order to take advantage of an 8%-per-year delayed retirement credit until age 70.  During this period of benefit suspension, the retiree’s spouse can then file for and receive their spousal benefit.  This strategy is most useful for married couples where one spouse has been the primary worker while the other spouse has a limited wage history. 

 

For example, Jean has been the primary breadwinner and Joe has never worked outside the household.  Both Joe and Jean are age 66.  Jean is eligible for a benefit of $2,000/month at her full retirement age, but wants to delay her benefit until age 70 in order to increase it by 32%.  Joe will have no retirement benefit of his own at full retirement age, but will be eligible for a spousal benefit that is half of Jean’s full benefit or $1,000/month.  Under the “file and suspend” strategy, Jean could file for her benefits at full retirement age and then suspend them until age 70.  Meanwhile, Joe could file for his spousal benefits at full retirement age and collect his $1,000/month of spousal benefits even while Jean is delaying and increasing her individual benefit.

 

Under the new rules, a retiree’s spouse will no longer be able to receive spousal benefits while the retiree delays their benefits.  In our previous example, if Jean were to file and suspend her benefits then Joe would have to suspend his spousal benefit as well. 

 

If you or your spouse are 66 or will turn 66 by April 29th, 2016, you are still eligible to take advantage of this strategy.  However, you must file and suspend by April 29th, 2016!

 

Retirement of Restricted Application

The restricted application strategy allows a retiree to file a restricted application for Social Security benefits at full retirement age.  The retiree would then collect spousal benefits until age 70 at which time he would begin collecting his own delayed benefits.  This strategy is most useful for married couples where both partners have work histories. 

 

If we continue the earlier example, imagine that Joe did spend some years working outside of the home and has an individual retirement benefit of $1,100/month.  Jean files and suspends to delay her own individual retirement benefits until age 70 in order to increase her benefit by 32%.  At the same time, Joe can file a restricted application receiving his $1,000/month spousal benefit while also delaying his own individual benefit.  In this way, Joe can delay his own benefit in order to earn his maximum benefit amount at age 70 while collecting a spousal benefit in the meantime.   

 

Under the new rules, a retiree who files for benefits between the ages of 62 and 70 will receive the higher amount of his individual retirement benefit and spousal benefit.  Retirees will no longer have the option to file a restricted application.  In our previous example, when Joe files for benefits at full retirement age, he is deemed to file for both his individual and spousal benefits.  He can no longer restrict his benefit to the spousal amount until age 70.  Therefore, he will receive the biggest benefit amount which in this case is his own individual retirement benefit of $1,100/month.  Joe loses the ability to increase his benefit by 32% by delaying until age 70.

 

If you or your spouse reached age 62 by December 31, 2015, you are still eligible to file a restricted application to receive just spousal benefits at full retirement age as long as your spouse is receiving his or her own retirement benefits- or has filed for and suspended benefits- by April 29th, 2016.  Anyone who was under the age of 62 by December 31, 2015 will no longer have the option of filing a restricted application.   

 

If you have any questions about your eligibility for these two strategies before the April 29th deadline, be sure to reach out to your financial advisor!