As the April 29th Social Security deadline approaches for the file and suspend strategy, phones have been busy. Not all clients need to act prior to that deadline, however.
The file and suspend and the Restricted Application strategies work in conjunction with one another for a married couple. Someone would need to file and suspend to give the option to his or her spouse to take advantage of the spousal benefit. Someone would need to be at Full Retirement Age (FRA) to take advantage of these options, age 66 if born between 1943 and 1954.
Auxiliaries, such as spouses or children, may claim benefits based on a worker who claimed benefits and requested a voluntary suspension prior to April 30, 2016. Let’s take a look at a quick example.
Bob turns 66 on March 4, 2016. He needs to file and suspend so he can continue to build delayed retirement credits on his own work record and to give the option to his spouse to file for a spousal benefit. He would need to complete this action prior to April 30, 2016.
Suspensions requested on or after April 30, 2016 preclude any other beneficiary from collecting child or spousal benefits during the suspension.
If Bob was under a rock and suspended after April 29, 2016, his wife would not be able to file a spousal benefit. His suspension also would suspend anyone else from claiming off of his record.
People born on or before Jan. 1, 1954, may restrict an application to only spousal benefits, while delaying receipt of their retirement benefits and collecting an 8% per-year delayed retirement credit. Let’s see how these work together.
Bob turns 66 on March 4, 2016. He files and suspends in March to make benefits available to Connie, his 65-year-old wife (date of birth Aug. 10, 1950). She has not reached her FRA yet but turns 66 this August. Since Bob filed and suspended before the April 30th deadline, Connie can now file the Restricted Application to take only the spousal benefit while allowing hers to build delayed retirement credits.
Let’s look at another example, when both are under 66 but born on or prior to Jan 1, 1954.
Jack (date of birth June 2, 1951) and MaryAnn (date of birth June 12, 1953) both have an FRA of 66. MaryAnn was the higher wage earner and wants to take a spousal benefit off Jack’s record once she reaches FRA. In order for this to happen, Jack would need to file and receive benefits so MaryAnn can file the Restricted Application. The reverse is available — for Jack to file spousal on MaryAnn’s record — but it may not make sense to if they were looking to maximize.
People born Jan. 2, 1954, and later should focus on whether to file early or file late while considering the implications of the decision for the surviving spouse.
Our software was updated to compute all scenarios, for single, widowed and divorced individuals. These changes were made immediately after the president signed the Bipartisan Budget Act of 2015 into law. Being able to spot these scenarios and what may work for the client or potential client cannot be done easily. Social Security is not a one-strategy-fits-all type of program. There are other factors such as longevity, inflation rate, continuing to work, tax implications that will keep Social Security planning at the forefront of an overall retirement plan. These are all topics that are discussed with our clients, along with ways to integrate Social Security claiming with retirement income planning in the most tax-efficient way.
The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Social Security Timing.
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Hedges Insurance Agency LLC
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