Updated: Apr 15, 2018
If I had a dollar for the number of times I have heard someone tell me that Social Security planning is so "two years ago" or that the claiming strategies were wiped out that made the topic appealing within the realm of retirement income planning, I would be a rich woman. I'll admit that the rules are confusing and, in fact, if you look at them long enough, they can make your eyes cross. If you really want to take the risk of losing your mind, do what I do and comb through SSA's Procedural Operations Manual (POMS); now that's a fun way to spend a Saturday night if you ask me. I am only half way kidding and anyone who knows me will attest to that truth.
Yes, there were significant changes in late 2015 that did impact some crafty strategies that could potentially enhance overall lifetime benefits. Two, to be exact, were the target of the legislation under the Bipartisan Budget Act of 2015. File and suspend and filing a restricted application were accused of being "unintended loopholes" designed to increase the income, particularly of married couples, if they played their cards right. I'm still puzzled to this day as to why these two strategies were made out to be some seedy underhanded use of the system since the Social Security Administration itself published them as viable options, if you were fortunate enough to understand their appeal.
Nevertheless, let me clear up the confusion that continues to pervade consumers and financial advisors alike. If you were eligible but didn't affirmatively elect to file and suspend with the SSA by April 29, 2016, you missed the boat. What does this mean? It means that if I want someone to collect benefits under my record, such as my spouse or my eligible child, I have to file for my benefit before they can do so. Prior to the April 2016 deadline, I could have filed for my benefit (assuming I was at least age 66 at the time), immediately suspended it and continued to let my benefit earn those coveted delayed retirement credits up to age 70, while my non-working spouse, for example, collected a spousal benefit under my record.
Now let's switch gears to file and suspend's partner in crime - the restricted application. First of all, these are not one in the same and second, both didn't meet their demise simultaneously. Here's what you need to know first and foremost. If you have a client or prospect whose birth date falls before January 2, 1954, stop multi-tasking for a moment and give me your undivided attention. These individuals are the ones that are grandfathered into the ability to file a restricted application if all their stars are aligned. "Remind me what exactly a restricted application is", you say?
Let's use me again as the example. Suppose I was born on December 11, 1953. I am entitled to my own retirement benefit estimated to be $2,650 at my full retirement age (FRA) of 66. Let's also assume that I am married and my husband has just retired at age 66 and recently claimed his own benefit of $2,000. If I wait until my FRA of 66, I have the option of filing restricted for 1/2 of my husband's primary insurance amount, or $1,000, and delaying my own to as late as age 70, when my $2,650 benefit would now be worth $3,498 (accounting for 4 years at 8% per year of delayed retirement credits and 0% COLA). So, while I'm letting my own benefit earn a monthly credit for each month past FRA I delay claiming it, I'm collecting $1,000 while I wait in the form of a spousal benefit. The bonus is that I am also securing a far higher benefit to whomever survives between my husband and me than had I just collected my own benefit at age 66.
Obviously, in the interest of brevity, I won't go into the myriad examples of what could happen when only one person meets the requirement or if both do and neither have yet filed. Suffice it to say that each client's circumstances deserve a deeper dive than what I've provided here. But I urge you to know that this opportunity exists for many consumers. And yes, the strategy can potentially do amazing things in terms of creating peace of mind for the survivor and perhaps requiring less of a draw down on other assets saved for retirement.
For more information, visit www.ssa.gov and read the rules surrounding deemed filing (which is what those of us who were born post-January 1, 1954 fall under). You may find the link to it here: https://www.ssa.gov/planners/retire/deemedfaq.html. FAQ #4 is the sweet spot for eligible individuals who have the option to file restricted. It may not be for everyone but knowing that filing restricted is an option for some of your clients is most definitely worth exploring as they navigate the waters of retirement.
HLS Retirement Consulting, LLC is an independent consulting firm and is not affiliated with any other company and does not endorse or recommend investment products. Consulting provided herein should not be construed as tax or legal advice. Your clients should always seek guidance from their tax or legal counsel prior to following a proposed course of action.