Five Questions and Answers about New Social Security Claiming Rules
When
Congress unexpectedly eliminated two Social Security claiming
strategies as part of the Bipartisan Budget Act of 2015, retirement
planning got a little more complicated for people who expected to use
those strategies to boost their retirement income. Here are some
questions and answers that could help if you are wondering how the new
rules might affect you.
What's changing?
The
provision of the budget bill called "Closure of Unintended Loopholes"
primarily addresses two Social Security claiming strategies that have
become increasingly popular over the last several years. These two
strategies, known as "file and suspend" and "restricted application for a
spousal benefit," have often been used to increase cumulative Social
Security income for married couples. The budget bill has eliminated
those strategies for most future retirees, but you may still have time
to take advantage of them, depending on your age.
File and suspend
Under the old rules, an individual who had reached full
retirement age could file for retired worker benefits in order to allow a
spouse or dependent child to file for a spousal or dependent benefit.
The individual could then suspend the retired worker benefit in order to
accrue delayed retirement credits and claim an increased worker benefit
at a later date, up to age 70. For some couples and families, this
strategy increased their total lifetime combined benefit.
Under the new rules, effective for suspension requests submitted
on or after April 30, 2016 (or later if the Social Security
Administration provides additional guidance), the worker can file and
suspend and accrue delayed retirement credits, but no one can collect
benefits on the worker's earnings record during the suspension period,
effectively ending the file-and-suspend strategy for couples and
families. The new rules also mean that a worker who files and suspends
can no longer request a lump-sum payment in lieu of receiving delayed
retirement credits for the period during which benefits were suspended.
(This previously available option was helpful to someone who faced a
change of circumstances, such as a serious illness.)
Restricted application
Under the old rules, a married individual who had reached full
retirement age could file a "restricted application" for spousal
benefits after the other spouse had filed for retired worker benefits.
This allowed the individual to collect spousal benefits while delaying
filing for his or her own benefit, in order to accrue delayed retirement
credits.
Under the new rules, an individual born in 1954 or later who
files a benefit application will be deemed to have filed for both worker
and spousal benefits, and will receive whichever benefit is higher. He
or she will no longer be able to file only for spousal benefits.
The bottom line
A
limited window still exists to take advantage of these two claiming
strategies. If you are currently at least age 66 or will be by April 30,
2016, you may be able to use the file-and-suspend strategy to allow
your eligible spouse or dependent child to file for benefits, while also
increasing your future benefit. To file a restricted application and
claim only spousal benefits at age 66, you must be at least age 62 by
the end of December 2015. At the time you file, your spouse must have
already claimed Social Security retirement benefits or filed and
suspended benefits before the effective date of the new rules.
Why did Congress act now?
Both
the file-and-suspend and the restricted application strategies were
made possible by the Senior Citizens Freedom to Work Act of 2000. Part
of this Act's original intent was to enable individuals to change their
minds in the event they determined that they wanted to work longer but
were already receiving Social Security retirement benefits. However,
this opened up some claiming strategies, that while legal, went beyond
the original intent of the legislation. Congress used the budget bill to
close these loopholes in order to save money and slightly reduce the
long-range actuarial deficit faced by the Social Security trust funds.
What if you're already using one of these strategies?
If
you are already using the file-and-suspend or the restricted
application strategy, you will not be affected by the new rules. You
have already met the age requirements.
How are benefits for surviving spouses affected?
Rules
affecting surviving spouses have not changed. If you are eligible for
both a survivor benefit and a retirement benefit based on your own
earnings record, you can still opt to receive one benefit first, then
switch to the other higher benefit later.
What planning opportunities still exist?
Even
if you can no longer take advantage of the file-and-suspend and
restricted application strategies, you may still benefit from
considering your Social Security filing options. The age when you begin
receiving Social Security benefits can significantly affect your
retirement income and income that is available to your survivors.
Basic
options for claiming Social Security remain unchanged. Currently, the
earliest age at which you can receive Social Security retirement
benefits is 62, but if you choose to take benefits before your full
retirement age (66 to 67, depending on the year you were born), your
benefit will be permanently reduced by as much as 30%. On the other
hand, if you delay receiving Social Security benefits past your full
retirement age, you'll receive delayed retirement credits, which will
increase your benefit by 8% for each year you delay, up to age 70.
Determining
when to file for Social Security benefits is one of the biggest
financial decisions you'll need to make as you approach retirement.
There's no "one-size-fits-all" answer--it's an individual decision that
must be based on many factors, including other sources of retirement
income, whether you plan to continue working, how many years you expect
to spend in retirement, and your income tax situation. It's especially
complicated when you're married because you and your spouse will need to
plan together, taking into account the Social Security benefits you
each may be entitled to, including survivor benefits.
Although
some claiming options are going away, plenty of planning opportunities
remain, and you may benefit from taking the time to make an informed
decision about when to file for Social Security.
Contact us for a no cost review of your own situation.
If you sign up for a my Social Security account at the Social Security website, socialsecurity.gov, you can view your Social Security Statement online. Your statement contains a detailed record of your earnings, as well as estimates of retirement, survivors, and disability benefits, along with other information about Social Security that will be very useful when planning for retirement. If you're not registered for an online account and are not yet receiving benefits, you'll receive a statement in the mail every five years, from age 25 to age 60, and then annually thereafter.
The information presented here is not specific to any individual's personal circumstances and is not meant to provide specific investment, tax or legal advice.
The information above is provided for educational purposes based upon publicly available information from sources believed to be reliable.The information in these materials may change at any time and without notice.
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