The recent budget agreement did more than authorize the
federal government to engage in additional borrowing, it also changed the rules
for claiming Social Security. Going forward, two claiming strategies that had
given some couples the potential for higher lifetime benefits will no longer be
available.
Closing the door on
two strategies
Social Security strategies are built around the fact that
you can start to claim benefits as early as age 62, but if you defer, the
benefit can grow—up to age 70. Each year you delay Social Security in that time
frame, your monthly benefit will grow by as much as 8%. That growth adds up—a
monthly benefit could be 75% more if benefits start at age 70 instead of age
62.
In addition to the basic question of timing, couples have
additional choices, because an individual is entitled to his or her own benefit
or a spousal benefit.
In 2000, Social Security introduced the concept of voluntary
suspension: even after you claim benefits, at or after reaching full retirement
age (FRA) you can elect to stop and earn the deferral credits—increasing your
future benefit.
Voluntary suspension led to a number of strategies, two of
which will be unavailable in the wake of the new law:
File and suspend
The strategy: Typically,
in "file and suspend," one member of a couple would file and claim
benefits—allowing his or her husband or wife to begin collecting spousal
benefits—and then suspend his or her own benefit—allowing that future benefit
to increase.
The change: Under
the new rules, when an individual suspends his or her own benefits, not only
will all benefits payable to that individual be suspended, but all benefits
payable on his or her earnings record payable to otherindividuals will
also be suspended.
What happens: Those
who are receiving benefits now under this strategy will continue to receive
them. The new rules limiting suspended benefits go into effect 180 days after
the budget agreement was signed into law on November 2, 2015. Once that
deadline passes, no one will be able to elect this option.
Restricted spousal
benefits (sometimes referred to as "claim now, claim more later")
The strategy: At
or after an individual's official FRA, a person could file a
"restricted" application for "just" spousal benefits, while
allowing his or her own future retirement benefit to grow.
The change: Social
Security will no longer allow certain individuals to restrict an application to
spousal benefits only; the individual will be required to file and claim all
eligible benefits.
What happens: People
age 62 or older at the end of 2015 will continue to have the option of
restricting an application to spousal benefits only. People turning 62 in 2016
or later will have to claim all their benefits upon filing.
These two strategies were often used together, with one
spouse filing and suspending, and the other claiming just the spousal
benefits—allowing each of their benefits to grow. That combined strategy will
now be available only for those who are at their FRA and who claim within six
months of the budget deal being enacted.
Claiming Social
Security is still a strategic decision
The elimination of these two claiming strategies removes
some options for couples, but it doesn't minimize the importance of deciding
when to take Social Security.
For couples or individuals in good health, remember that
delaying Social Security can increase monthly benefits that will rise with
inflation and will last the rest of your life—no matter how long you live. This
means that delaying can help improve your retirement outlook, especially if you
expect to live into your late 80s or 90s.
For couples, the removal of the file-and-suspend and
claim-now, claim-more-later strategies means that longevity and income
differences become increasingly important. For many couples, delaying the
benefit for the higher earner can be particularly significant. This is because
after the higher-earning member of a couple dies, the surviving spouse can
claim the deceased spouse's full benefit. So claiming the lower earner's
benefit early but delaying the benefit for the higher earner may make sense.
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