By Wayne William Cipriano
This is not exactly like closing the barn door after the horse has escaped, but it is close. I am speaking about the new rules that govern claiming strategies for Social Security Benefits (SSBs).
I just heard about them April 18 and they do not apply to either of us, but if you ever plan to collect SSBs and you are between the ages of 62 and 70, they may have a huge impact on you. If you fall outside these age limits you might as well go on to the rest of the newspaper.
Some of you might remember a SSB claiming strategy that allowed a recipient to begin taking their SSB at age 62 and collect it for eight years. Then, at age 70, the point at which delaying SSBs no longer increases the eventual benefit, the recipient could repay the entire amount received and apply for their increased, aged 70 benefit as if they had never taken a dime in benefits. What that amounted to was an interest-free loan from the Federal government over an eight-year-period.
Yes, it may be difficult to summon the discipline to save or invest those payments over an eight-year period, keep all the profits from saving or investing over that time, and pay back only the amount received in SSBs. But, a lot of people did. So many in fact that this very good deal for us was outlawed a couple of years ago.
Now, two other potentially good deals are being modified and in one case those effected have only a few days to use this soon-to-disappear strategy. What great financial benefit will the Feds next eliminate? The Roth IRA? It is such a good deal it would not surprise me if they did. But, that is fodder for another article.
There are two SSB strategies that are being changed: File and Suspend (F&S), and Restricted Application (RA). The first ends on May 1, 2016, just a few days from now. F&S allows you at full retirement age, to apply for your SSBs, making your spouse eligible to collect a spousal benefit based on your earning record. Then you immediately suspend the collection of your own benefit, allowing you to wait longer to receive this benefit, which then gets slightly larger every month you delay until you reach age 70 when the monthly increases stop. All this time, while you suspended your SSBs, your spouse received the monthly spousal benefit. This is a really nice strategy and many took advantage of it.
Unfortunately for us, but good for the Social Security Fund, I guess, this F&S strategy will no longer exist after April 30, 2016, (nine calendar days from today). If you think you might be interested, do some Internet research immediately, talk to someone who understands SSBs.
The second strategy, RA, is not as urgent but may be important to you. However, if you were born in 1954 or later, forget-about-it, it is too late to do anything, youth is finally punished. If you are 62 to 70, this second strategy might work out for you.
At your full retirement age you can apply for a spousal benefit based on your spouse’s work record while leaving the benefits you have earned based on your own work record alone. Your spouse must be taking their SSBs at this time, while your eventual benefit at age 70 goes up each month you delay taking it as you continue to collect your spousal benefit.
At age 70, you cease collecting your spousal benefit and apply for the SSBs your own work record has earned for you and which has been increasing a bit every month since you turned 62 and delayed taking it. This seems to make most sense for the spouse making the largest SSBs, providing everyone lives forever. Life happens, and everyone’s situation is different, but it is worth checking out. And, once again, this RA strategy is only available to spouses older than 62 in 2015.
I understand how confusing this sounds, and, like doing your own tax returns where you know every little rule and regulation but cannot help your neighbor who has a different set of circumstances than you, am only giving what information I have learned today as it effects our family. You must investigate these two recently changed strategies for your self to see if they can benefit your individual situation.
You must act quickly in the case of File and Suspend and if you decide that Restricted Application is right for you the sooner you execute it, the better it will work for you. By the way, if you are already using one of these strategies you can continue to do so, the changes will not affect you.
Social Security, unlike dodge ball, has some very mysterious rules. Once you understand those rules you can, very well may use them to enhance the Social Security income you and your spouse will acquire. If those rules baffle you, do not just rely on what I have said, find someone who knows those rules and can apply them to your specific situation, someone you trust to do so.
Do not delay, get in gear. We are talking money here.