The Bi-Partisan Budget Bill signed on November 2, 2015 is phasing out two powerful strategies – Restricted Application and File (Claim) and Suspend. However Social Security Claiming Strategies still remain. Here are a few!
There is confusion regarding Delayed Retirement Credits. The changes in the budget bill do not impact DRCs. Thus, DRCs are earned if benefits are delayed until beyond Full Retirement Age. The strategy of waiting beyond Full Retirement Age to begin benefits still applies. And of course waiting to age 70 to earn Delayed Retirement Credits of 32% may result in maximum surviving spouse benefits payable. For example, Alan begins his benefits at age 70 and receives $3,500 per month after the increase for Delayed Retirement Credits. Assuming his benefit is greater than his wife Sarah’s benefits, then will receive a larger widow benefit for the rest of her life.
Filing a Restricted Application to claim a spousal benefit without touching your own benefit is still available for folks reaching age 62 by the end of 2015. For example, Alice can file a Restricted Application, at her Full Retirement Age if she is at least age 62 by the end of 2015. Of course, for Social Security purposes, Alice turns will be at least age 62 if her actual birthday is January 1, 2016.
The File and Suspend strategy is still available for folks turning age 66, Full Retirement Age, by May 1, 2016. Caution – consideration should be giving to filing a Restricted Application prior to Filing and Suspending. Assume Al reaches FRA in March, 2016 and that his Full Retirement Age benefit is $2,000. Al can File and Suspend to allow his wife, Amy to collect a spousal benefit while is suspends. This strategy works if Amy is not eligible for her own benefits. However, let’s assume that Amy is eligible for $2,000 off of her record. A better strategy might be for Al to file a Restricted Application to receive a spousal benefit of $1,000 at his Full Retirement Age. If Al decides that a Restricted Application would be better within a year of Filing and Suspending, then he can withdrew this application and file a Restricted Application. If beyond the 12 month window, than the Restricted Application will not be available.
Both spouses can wait to age 70 and earn the maximum Delayed Retirement Credits on their own benefits.
The higher income earner should consider taking benefits prior to age 70 to allow for the payment of spousal or children benefits earlier. For example, Hal turns age 66 in January, 2017 and his Full Retirement Age benefit is $2,000. He is considering waiting to age 70 increasing his benefit to $2,640 per month due to the Delayed Retirement Credits. His wife, Samantha, will turn age 62 in January, 2016 and is not eligible for any Social Security benefits on her own record. If Hal waits to age 70 to begin his benefits then Samantha will not be eligible for a spousal benefit until age 66. If Hal begins his benefits at age 66, then Samantha will be able to begin the spousal benefit at age 62. The question is should Hal begin benefits prior to age 70 in allow for the payment of a spousal benefit earlier?
Husband to wait to age 70. Wife begins her own Social Security at between ages 62 – 66. This strategy maximizes surviving spouse benefit and begins the receipt of some benefits at an earlier age by the wife. She will step into a larger widow benefit upon her husband’s death as he waited to age 70. Under prior law, we would recommend the wife not collect before her Full Retirement Age as the Restricted Application strategy might be beneficial. With the changes, it might make more sense for the wife to begin at age 62 as she will step into his shoes in the future as a surviving spouse.
Section 831 in the Bi-Partisan Budget Bill does phase a couple of very powerful strategies, File and Suspend and Restricted Application. However these strategies are still available for certain pockets of folks. For folks at least age 62 by the end of 2015 the Restricted Application is still available upon reaching Full Retirement Age. Additionally, folks reaching Full Retirement Age by May 1, 2016 can still File and Suspend by April 30, 2016. For other folks these powerful strategies are no longer available.
However, strategies still remain. There is still a need to review the coordination of benefits between a husband and wife to determine the best time to take worker benefits and spousal benefits. Should the higher income earner begin benefits prior to age 70 allowing spousal and or children benefits to be paid? Should a wife begin her own benefits at age 62 as she will receive a widow benefit in the future. Married couples still have options and might be leaving $100,000 on the table by not exploring their options.
Take the time to review your options. You will be happy in the end!