Navigating Social Security Claiming Changes

Posted by Denise Kovach, CFP®, AIF®, NSSA®

For years, Americans have been utilizing Social Security claiming strategies to maximize their overall benefits. Until recently, couples wanting to use these strategies could do so quite easily. They just needed to know that the strategies existed and how to properly apply them to their own financial situation.

The most popular strategy, “File and Suspend,” is where the higher earner (at age 66+) files his/her application to receive their own Social Security benefits on their own record. But, because they do not want to receive their own benefits yet (because they can continue to grow Deferred Retirement Credits at 8% per year until age 70), they simply suspend the application to stop the process. This now allows for three things: (1) their spouse can file for benefits based on their spouse’s record, and (2) the person who suspended application can now continue to defer taking their own higher benefits until or up to age 70. (3) They are also eligible for full retroactive benefits, if necessary (example: John Doe waits to begin taking his Social Security benefits and he is now age 68. A medical emergency occurs in the family leaving him with a major expense for which he does not have adequate money in reserves to pay. He, therefore, files to receive all of the benefits he would have otherwise been paid had he began taking his Social Security benefits at his full retirement age, 66, in a lump sum. Keep in mind that once he begins collecting his monthly Social Security benefits, the amount will revert to what it would have been, not the higher amount as if he waited.)

Another strategy, “Filing a Restricted Application,” is where the higher earner (at age 66+) files a restricted application on his/her spouse’s record in order to begin receiving spousal benefits only, while letting his/her own benefit continue to earn Deferred Retirement Credits until age 70. At that time, he/she will switch over to their own higher benefits. This strategy is also known as “Claim Now, Claim Later.”

On November 2, 2015, President Obama signed into law the Bipartisan Budget Act of 2015 eliminating both of these strategies. However, you may still qualify! Here are the deadlines:

File and Suspend – You must be age 66 no later than 05/01/2016 AND you must File and Suspend on or before 04/29/2016. Otherwise, this strategy is null and void; no exceptions.

Filing a Restricted Application – If you turned at least age 62 no later than 01/01/2016, you are still eligible to file a restricted application at your full retirement age. Note that a claimant must be Full Retirement Age (66) or older, must specify that he/she wants only spousal benefits, and his/her spouse must have filed for his/her own benefits.

For those of you who no longer qualify for these two strategies, there are still ways you can get the most out of your Social Security earnings. One strategy is to put off taking your benefits until you are age 70 when your lifetime monthly payment (which may also be the lifetime payment for your surviving spouse) will have grown to its maximum.

You can also work longer, therefore potentially increasing the amount of your benefits. The reason is because your Social Security benefit is calculated by taking the average of your 35 highest earnings years resulting in the “Average Indexed Monthly Earnings (AIME)” calculation.

Another thing you can do is calculate your life expectancy. Are you healthy? How long did your parents and grandparents live? If your genes indicate that you may live into your 80s, then put off claiming Social Security. However, if your circumstances point to a shorter life expectancy, go ahead and claim your benefits earlier. Always, always file for your benefits by age 70, as there is no continued growth thereafter.

Right now, married couples should reassess their options with the upcoming April 29, 2016 deadline in place for implementing the File and Suspend strategy. And, for those couples who are at least 62 years old on 01/01/2016, evaluate whether filing a restricted application for benefits makes sense. The decision to implement either of these strategies is a personal and financial one, but now your decision has to be made sooner rather than later.

I invite you to attend one of my upcoming Social Security workshops.

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