Expensive Mistakes If You Are Not Careful
The 2015 Bipartisan Budget Act was signed into law on November 2, 2015. It extended our nation’s debt limit to March 15, 2017, prevents large increases to some seniors Medicare Part B premiums and changed Social Security retirement strategies.
Today, I will address changes to Social Security. If you will be age 66 as of April 30, 2016, and want to take advantage of planning strategies to maximize your Social Security Benefits you may want to read this carefully. The explanations below are at an overview level and there are many other considerations and combinations. Therefore, if you are interested in more, let’s discuss it.
Here’s what has changed:
- File and Suspend for spousal benefits or for qualifying dependent’s benefits
- File for a spousal benefit only through Restricted Application
- Divorced spouses benefits
- File and Suspend for Retroactive Benefits
File and Suspend
Only available for workers who are full retirement age or older. As of April 30, 2016 individual workers of all ages can no longer use the File and Suspend strategy to begin a spousal benefit for the other spouse or for a qualifying dependent.
- Just as before this law change, a spouse must still meet certain rules to receive a spousal benefit such as
- Minimum age must be 62
- Married at least one year or married less than a year and the parent of the worker’s child
- When April 30th rolls around, an individual worker can no longer File and Suspend for the benefit of the other spouse or qualifying dependent child
- However, if you File and Suspend PRIOR to April 30th, 2016, you will be grandfathered and any spousal or dependent benefit will continue unaffected by the new law.
Example of this strategy
You have a Social Security benefit of $2,500 per month available to you at age 66. You want to continue to work as long as you can. However, your spouse age 63 would like to begin to claim a spousal benefit because her work history does not qualify for her own benefits. Your spouse would normally be entitled to 50% of your benefit if she was as her full retirement age of 66. Since she’s only 63, the benefit is reduced by 25%. Her monthly benefit will be $937.50. Let’s take a look at how much that’s worth if she lives to age 90. It’s a simple calculation (not including any cost of living adjustments). 937.50 x 324 months equals $303,750.
Also, when you file and suspend, your $2,500 per month benefit will continue to grow by 8% per year from delayed retirement credits. When you are age 70, your benefit will have grown to $3,300 per month.
IF YOU WAIT until April 30th or later, you will need to start your own benefit to begin a spousal benefit.
When you want to receive spousal benefits until you turn age 70 and can switch to your own benefits. The ability to file for a Restricted Application will no longer be available if you have not turned age 62 in 2015.
The general purpose of this strategy was for one spouse to receive spousal benefits from their full retirement age until age 70 then switch to their own increased benefit at age 70.
Example of this strategy
You have a Social Security benefit of $2,500 per month available to you at age 66 and your spouse who is age 63 has a benefit of $800 per month at full retirement. You file a Restricted Application in order to receive $400 per month from your spouse’s full retirement benefit. Your spouse files for their own benefit early at age 63 and will receive a reduced benefit of $640 per month. Let’s take a look at how much that’s worth to you between age 66 and age 70. It’s a simple calculation (not including any cost of living adjustments). 400 per month x 48 months equals $19,200.
This also means your $2,500 per month benefit will continue to grow by 8% per year from delayed retirement credits. When you are age 70, your benefit will have grown to $3,300 per month.
Divorced Spouses Benefit: If you want to claim from your ex’s benefits
If you are the divorced spouse desiring to make a claim against your ex-spouses benefits, you must already be age 62 in 2015.
File and Suspend for Retroactive Benefits
This strategy was available for anyone at full retirement age or older if they qualified for their own benefit. The strategy allowed you to File and Suspend. When you were ready to start receiving benefits you could choose to receive benefits based on the amount you were entitled to when you originally Filed and Suspended. You could also file a claim to receive a lump sum of all benefits that would have been paid to you. Remember, when your benefits begin, let’s say at age 70, you will begin to receive the monthly benefit you would have received on your original File and Suspend date.
Example of this strategy: You would have qualified for $1,800 per month when you Filed and Suspended. Let’s do the math: $1,800 per month x 48 months of suspension equals $86,400.
If you wait until April 30, 2016 or later, this benefit will no longer be available.