Age 62 AND 2016
If you want to claim Social Security benefits soon, keep a date & a number in mind. The date is April 30, 2016…………….. The number is 62
That date and that number have become very important, especially if you are about to retire. Why? Congress recently revised the Social Security benefit rules.
In October, Congress passed a new federal budget. In doing so, it shut down the file-and-suspend and restricted application claiming strategies for Social Security, which married couples used to try and maximize their combined retirement benefits.1
Broadly speaking, the point of both strategies was to generate spousal Social Security benefits for a couple while they suspended their own, individual benefits (thereby allowing those individual benefits to grow by roughly 8% per year from age 62-70 until claimed).1
After April 30, 2016, the door will shut on the file-and-suspend strategy. The strategy worked like this: when one spouse reached Social Security’s Full Retirement Age (66), that spouse claimed Social Security but then immediately suspended their retirement benefits. The other spouse could then claim a spousal benefit while their deferred, individual Social Security benefit grew 8% annually.2
You may still be able to use the file-and-suspend strategy before the door closes.
Are you married? Are you 66 or older right now, or will you be 66 years old by April 30, 2016? If your answer is “yes” to both those questions, then you and your spouse still have a chance to use the strategy.
That chance disappears forever on May 1 – and you may be taking a big risk if you wait until April to claim benefits, as the Social Security Administration may have a backlog of applications on its hands at that time.2
If you are still eligible to file-and-suspend and you miss the April 30 deadline, you could end up leaving anywhere from $10,000-60,000 in lifetime Social Security income on the table.1
One asterisk: you can still use the file-and-suspend strategy as an individual. You can file for your Social Security benefits and voluntarily suspend them, letting your deferred, individual Social Security benefit grow by about 8% a year until age 70.3
Why is the number 62 now so important? You will not be able to file a restricted application for only spousal benefits if you turn 62 in 2016 or later. In other words, the door is closing on the restricted application claiming strategy.1
That strategy worked as follows: between age 66 and age 70, one spouse would file a restricted application to claim spousal Social Security benefits while deferring their individual benefits until age 70. At 70, they switched from the spousal benefit to their own larger Social Security benefit.2
In 2016 and future years, spouses newly eligible for Social Security will be given a simple, irrevocable choice. They can take either their spousal benefit or their own benefit, whichever is larger. They will not be able to defer their own benefit until age 70 and then switch out of their spousal benefit at that time to their own, larger benefit.2
The good news? If you are 62 or older by the end of 2015, you can still file a restricted application for only spousal benefits. That could be a smart move if your spouse will be getting Social Security when you hit full retirement age (FRA) and you file for your spousal benefits on their earnings history.2
One other option is also going away. Under the new regulations, a Social Security beneficiary cannot file for benefits, suspend them for X years, and then retroactively request the suspended benefits as a lump sum. For example, if you file for Social Security at age 63, suspend benefits and then elect to receive your benefits at age 66, you will simply start getting the monthly Social Security income you deserve at age 66. No lump sum of deferred Social Security income will be waiting for you.2
If you are peeved by all this, you are not alone. You may have been counting on the file-and-suspend or restricted application strategies to arrange greater retirement income. Congress viewed them as loopholes that needed closing.
Does waiting to claim Social Security until age 66 or 67 still make sense? For many couples – particularly those in good health – it still does. While the sun is setting on the chance to receive some spousal benefits while you wait, the basic math of Social Security remains the same. The longer you wait to file for benefits, the larger your monthly individual benefits will be, up until age 70.
1 – nytimes.com/2015/12/05/your-money/the-end-of-social-security-loopholes-what-now.html [12/5/15}
2 - money.usnews.com/money/retirement/articles/2015/12/04/say-goodbye-to-the-social-security-file-and-suspend-strategy [12/4/15]
3 – marketwatch.com/story/key-social-security-strategies-hit-by-budget-deal-2015-10-30 [11/2/15]
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