With the new Social Security changes put into place this year, it will no longer be possible after May 1, 2016 for a person to “file and suspend” so that a couple can maximize their Social Security benefits. Moving forward, it is important to note what is changing, what is staying the same, and what you should be doing to maximize your benefits.
What is file and suspend?
The “file and suspend” option allowed a beneficiary with higher earnings than their spouse to file for social security, and then suspend their benefit payments immediately. However, a spouse could claim a spousal benefit while the original beneficiary’s deferred Social Security grew 8% per year until the age of 70. If you are under the age of 66 after the May 1st deadline, you must file and actually receive your benefits in order for your spouse to receive a benefit as well.
What’s a restricted application?
Let’s say you and your spouse are approaching retirement, both age 66, and looking to receive Social Security benefits. At age 66, your spouse’s benefit is $800 and yours is $2300. In order to get the most out of your combined benefits, it makes sense to delay the start of your earned benefit to age 70 to provide the largest benefit for your spouse. Your spouse would start his or her earned benefit of $800 at age 66, and then switch to the higher spousal benefit when you start your collecting Social Security at 70. In order for this to occur, when you turn 66 you would have to file a “restricted application” to claim only a spousal benefit and not your earned benefit for those 4 years.
The restricted-application option is being eliminated under the budget law also, but people who are 62 or older at the end of this year are grandfathered in. Once restricted applications are eliminated after the May 1st deadline, a spouse can only receive the larger of either their spousal benefit or their own benefit. Additionally, they will not be able to change their choice either, which means deferring benefits until age 70 and then switching options for a larger monthly check is no longer an option.
What should I be doing now?
According to financial planners, if you don’t meet the May 1, 2016 deadline, then it’s “back to the basics”. Ian Kutner, a certified financial planner with San Diego Wealth Management claims, “Social Security was always meant to be a supplement, not the main source of retirement income, but people don’t want to believe that for some reason.”
In order to ensure a comfortable retirement, workers should be putting money away in IRAs and 401(k)s, and, if possible, delaying their benefits for as long as possible in order to maximize their monthly amount. Although some loopholes in receiving Social Security have been closed, the core benefits are going to remain the same.