Social Security: Budget Deal Could Cost You in Benefits
Are you prepared to protect your social security benefits?
Congress is killing the File-and-Suspend strategy that allowed couples to boost lifetime Social Security retirement benefits by thousands of dollars. However, it isn’t dead yet, if you were born before April 30, 1950 you still have a window of opportunity.
File and Suspend Strategy
File-and-Suspend is a strategy where the higher-earning spouse files for Social Security benefits at his or her full retirement age, but then immediately suspends that filing. The lower-earning spouse can then claim spousal benefits (spousal benefits cannot be claimed until the primary worker also files for benefits) at his or her own full retirement age and later shift to their own full benefit, if it is larger. Since the primary worker (higher-earning spouse) has suspended their benefits it means they can still earn delayed retirement credit increases of 8%/year for waiting. Doing so not only increases the primary worker’s benefit but, increases the size of the survivor benefit that would be payable to the spouse if the primary worker dies first.
It isn’t just the spouse who could benefit from this strategy. When you claim individual Social Security retirement benefits, an additional payment of 50% of your Primary Insurance Amount is also payable for each dependent child (biological and legally adopted, as long as the child is unmarried and under the age of 18). The rules also apply to disabled children with no upper age limit, as long as the disability started before the age of 22. In addition, the spouse (under age 62) who is caring for a disabled child (of any age) or a child under the age of 16 is eligible for an early spouse’s benefit. The total of these benefits are subject to a maximum family benefit.
Luckily the new rules do not impact those who are already receiving benefits and if you were born before April 30, 1950 you have until April 29th, 2016 to implement this file-and-suspend strategy.
Restricted Application Strategy
The other strategy the budget deal impacted is the Restricted Application. The purpose of the restricted application was to give you the choice of which benefit you were claiming (either your individual or spousal benefit). This allowed the individual to claim just their spousal retirement benefit on their spouse’s record which would allow the individual to delay claiming their own retirement benefit, allowing it to grow. At a later date, the individual would switch over to their own higher benefit. If full retirement age was age 66 and the individual waited to switch over to their own benefit until age 70, they could have realized a 32% (8%/year) credit to their full retirement age benefit. This strategy was only relevant for dual-income couples.
In the case of the Restricted Application, for those who were born on or before January 1st of 1954, it is grandfathered under the current rules. If you are already receiving benefits under a restricted application, you can continue to do so. And if you are not, but might want to in the future, you can still do so. But the strategy of an individual filing a restricted application for spousal benefits is not relevant until the spouse has already filed for benefits. Again, there is a window of opportunity until April 29, 2016, for the spouse to file and suspend for benefits so that spousal benefits would be available. However, after that deadline, the restricted application will be possible but it can only be viable if the other spouse files and receives benefits.
If you were born January 2nd of 1954 or later, there isn’t an opportunity to file a restricted application now or in the future. The claim and switch strategy will be dead.
Claiming Social Security Benefits
The rules for claiming Social Security are extremely complicated. Generally the longer you wait to claim your benefits the higher your monthly benefit will be. Wait until age 70 and you lock in your maximum benefit. Claim at age 62 and take a 25-30% cut in benefits compared to your full retirement age benefit.
If you were born before April 30, 1950; I would strongly encourage you to seek assistance to determine if you should be acting before the deadline of April 29, 2016. As with most financial decisions, you need to look at all of the factors involved before acting.
Here at Caissa, we will definitely be running the numbers for our clients to see if it makes sense to implement the claiming strategy.
Caissa Wealth Strategies is a fee based registered investment advisory firm, specializing in personal, dynamic wealth management. Based in Bloomington, Minnesota, Caissa financial planning professionals provide individualized strategies for every client. You can expect more from CAISSA, and in turn, you will get a fiercely loyal advocate on your side. For more news and information on wealth management solutions, visit Caissa Wealth.