Social Security Maximization for Married Couples

You may have heard rumors that there were major changes made to Social Security when Congress passed the Bipartisan Budget Act of 2015. While it is true that big changes were made, it only affects a select group of people.

What changed were the filing strategies for married couples called, “File and Suspend” and “Restricted Application.” The recent budget bill closed the loophole on these two filing strategies for anyone who has not yet reached age 66 by April 30, 2016. For those who will be age 66 by April 30, 2016, they are able to still utilize these two strategies as they will be grandfathered in.

Current filing options remain unchanged.

All people who are eligible for social security have three choices for prompting Social Security retirement income (not SSDI):

  • At age 62 (early)
  • At full retirement age (which varies by date of birth)
  • After full retirement age

Take a look at your Social Security statement. Some people receive them in the mail but if you don’t have it handy, you can register for online access at ssa.gov and view your personal benefit statement there. You will see the staggering difference in your benefit amount depending on the age you decide to start payments. In fact, for each year you delay taking social security, your benefit goes up by 8%. That is an increase of 40% if you wait from age 65 to 70. These filing options remain unchanged. There are two additional filing strategies, Restricted Application and File and Suspend Strategy that will phase out after April 30, 2016.

Restricted Application (old rules)
If you’re married, you are entitled to claim spousal benefits in lieu of taking your own. The spousal benefit provides for 50% of what the amount of your spouse’s benefit. This can be beneficial when your spouse out-earned you in life and has a much higher benefit, but it can also be used as a means of delaying your benefits so they can continue to grow. This process is called the restricted application strategy.

By filing a restricted application, you elect NOT to receive your own benefits, even if they are higher than 50% of your spouse’s. Instead, you restrict your benefit only to the spousal benefits, allowing your own benefits to continue to grow at 8% per year.

The File and Suspend Strategy (old rules)
Under Social Security rules, the main beneficiary must have already filed for benefits in order for the spouse to file for spousal benefits under a restricted application. However, that doesn’t mean that the main beneficiary has to lose out on the delayed credits he or she can get by waiting until age 70 to take payments. The main beneficiary can file for benefits (thus enabling the spouse to file for spousal benefits) then he or she can suspend the benefits so that no payments are actually received. This is called a file-and-suspend strategy. This will allow the main beneficiary to receive the 8% annual increase to his/her benefits while still allowing the spouse to receive benefits in the meantime.

Example:

Terry and Pat are both age 66 and married. Terry’s benefits are $1500 per month and Pat’s benefits are $2000 per month.

Pat files for benefits at age 66 and then suspends benefits.

Terry files for benefits under a restricted application which means instead of taking Terry’s own $1500/month benefit, Terry gets 50% of Pat’s $2000 per month benefit.

Meanwhile, Terry’s and Pat’s own benefits are both growing at 8% per year until age 70.

At age 70, they both start receiving their own benefits, now at $1980 per month for Terry and $2640 per month for Pat. This is a total of $4620 per month which is $1120 more than the $3500 they would have been receiving had they both filed for their own benefits at age 66. Over their lifetime, based on a 90-year life expectancy, they would receive an additional $148,800 in total benefits with these filing strategies compared to regular filing strategies.

New rules
Under the new rules, for anyone who files after April 30, 2016, the worker can still file and suspend benefits but they no longer allow anyone else to file for benefits under their record during the suspension period. Further, the restricted application is no longer allowed so whenever someone applies for benefits, they are deemed to have filed for any benefits for which they are eligible and can no longer choose to restrict their own benefits.

If you happen to fall within that short window of time for married people who are already age 66 prior to April 30th of this year, you’ll want to act now to consider if either of these strategies are right for you.

But even if you aren’t eligible to use these filing strategies, the timing of when you start social security benefits can have a huge long-term impact. There are a lot of factors to consider in this decision. When you make an appointment to work with one of the professionals at Kramer Wealth Managers, we’ll show you how your income could look under each scenario and help you determine the best strategy for maximizing your benefits.

Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed and the accuracy of the information should be independently verified.