Well, the File and Suspend Social Security deadline has officially passed. This was a strategy that allowed one spouse to file and suspend benefits, so that his/her spouse could file for a spousal benefit…while the primary filer continued to benefit from Delayed Retirement Credits. Basically, this means that the suspender would benefit when he/she finally resumed benefits, with their benefit increasing 32%.
Unfortunately, as of April 30th, this strategy is no longer possible. So, the question is, what should you do now?
In this article I’ll cover why Social Security planning is still critically important because of the various Social Security strategies that still exist to help you maximize your benefits.
Great Strategies Still Available
Even with File and Suspend eliminated, there are still some great strategies you can utilize.
The Restricted Application
The Strategy: Filing a Restricted Application at Full Retirement Age or later allows the filer to file only for spousal benefits (worth up to 50% of their spouse’s Full Retirement Age benefit) while letting their own benefits continue to grow and accumulate Delayed Retirement Credits at the rate of 8% per year until they claim their own benefits at a later date.
The Change: With the exception of those filing for survivor benefits, anyone born in 1954 or later will no longer be able to file a Restricted Application for spousal benefits only. Those attempting to do so will be subject to the “deemed filing” rule which requires that Social Security consider your eligibility for all benefits for which you are eligible.
Why This is Important & What’s Happening: Filing a Restricted Application is being eliminated for those born in 1954 or later (with the exception of those filing for a survivor benefit).
Important Deadlines: You must be at least 62 by December 31st, 2015.
What You Should Do: Talk to an expert. The Restricted Application strategy is very valuable.
- Singles: Because a Restricted Application is only valuable to those that are or have been married, singles will be unaffected by this change, but planning with still be important due to what are known as “Social Security rat holes.”
- Married Couples: All married couples with at least one spouse that is at least age 62 but under 70 and that has not already claimed benefits on their own record need to consider whether it would be beneficial to file a Restricted Application to help them maximize their benefits. Married couples have the most to lose by failing to consider these strategies. Failing to take advantage of this strategy can often cost couples $50k to $60k in lifetime benefits or more than $120k in lifetime benefits when combined with a File and Suspend strategy.
- Divorced: All divorced individuals born prior to 1954 that have not already claimed benefits on their own record should highly consider and evaluate filing a Restricted Application in order to preserve the option to receive spousal benefits while also obtaining Delayed Retirement Credits. This is often worth $50k to $60k in benefits.
- Survivors: Survivors are unaffected by this new legislation and will continue to have the same options available to them going forward. Survivors should carefully consider their Social Security options because they can be eligible for benefits on one record while continuing to accrue Delayed Retirement Credits and claim on the other record at a later date.
For many married couples, the optimal strategy is for one spouse to claim retirement benefits and the other spouse to file a restricted application. For most of them, the loss of the much talked about file-and-suspend strategy won’t be an issue. Which spouse should file and when however, is critical. Missing filing dates can result in missed benefits.
Made a Mistake? Consider Suspending
Did you file for Social Security too early? Or maybe you want to accumulate Delayed Retirement Credits again so that you have a larger Social Security benefit in the future. Well, I have good news for you; if you’re between 66 and 70, you can increase your Social Security by suspending your benefits.
It’s instructive to know why you might want to consider suspending your benefits. First of all, and most common, it’s because a mistake was made by filing for Social Security too early. Suspending your benefits once you reach Full Retirement Age can help you undo some of this damage and you can begin to start accruing Delayed Retirement Credits again at the rate of 8% per year.
So let’s say you claimed at 62 and started to receive $1,500 per month at that point. If you suspend when you reach your Full Retirement Age of 66 and then resume your benefits at 70, your benefit will be approximately $1,980 per month (or 32% more) at 70. Remember though, don’t wait beyond 70 to resume your benefits because there’s no point as Delayed Retirement Credits stop accumulating at 70. And of course, you’ll have to have the ability to do without your Social Security benefit while it’s suspended.
Suspending is also helpful if you come into an unexpected financial windfall perhaps from an inheritance from a parent as an example. If you suddenly don’t need your Social Security benefits at the moment, considering suspending them so that you at least get that 8% per year return. Remember, this is not just an extra 8% between age 66 and 70, but rather, once you reach 70 this extra 8% per year will last for as long as you’re receiving the benefit.
Just keep in mind that if you do decide to suspend, benefits for your dependents such as a spouse or child will also be suspended as well.
The Bottom Line
It is important to recognize that changes to the Social Security system are not new. It has changed in the past and will undoubtedly change again in the future. To maximize your benefits you need to make sure that you are aware of the latest rules and strategies and how they impact you and your spouse.
Properly coordinating and timing benefits will remain critical for everyone that needs to claim Social Security because of the importance of pursuing strategies that maximize spousal benefits, increase delayed retirement credits, and avoid some of the pitfalls that are far too easy to make without the proper guidance and understanding.
Whether any of the strategies above are right for you requires careful analysis as each situation is different.
Until Next Time,
Matthew Allen is the Co-Founder/CEO of Social Security Advisors and creator of the new course Maximizing Your Social Security produced in conjunction with Weiss Educational Services. Matthew has helped thousands of seniors maximize their Social Security benefits and avoid costly mistakes when filing. Matthew has been at the forefront of financial services for over a decade. In addition to co-founding Social Security Advisors, Matthew also founded The Universal Group of Companies, a private investment firm, in 2004. From 2000 to 2004, Matthew was a NYSE Market Maker with LaBranche & Co., a Fortune 500 New York Stock Exchange firm.