By now you are probably aware that if you are taking your Social Security benefits, you won’t be getting a raise in 2016. You may even be aware that in addition to not having a Cost of Living Adjustment next year, the maximum benefit amount you can receive was actually reduced. Yet there is an even bigger concern when it comes to future benefits: In November President Obama signed the Budget Act of 2015 into law. This bipartisan (!) act took away current benefit strategies of the Social Security system. Which means it is more important than ever before to plan on how and when you will take your benefits… now.
There are a couple of windows of opportunity for applying strategies that can potentially add tens of thousands of dollars back into your pocket - but they depend upon your marriage history and your age. The act divided recipients into three different age groups for both married and divorced couples. Depending on when you and/or your spouse (or ex-spouse) was born will decide if these strategies will be available. Widows, widowers, and singles play by a whole different set of rules. As we discuss these strategies, keep in mind that there is no one size fits all. We have run several scenarios for various families and only a small few benefit the same from utilizing the same strategy. It is critical that your plan is developed for and tailored to your unique situation.
Let’s start with the group that needs IMMEDIATE attention: If you or your spouse were born on or before May 1, 1950 you still have time to potentially take advantage of both of the disappearing strategies. Under current law, when you or your spouse reaches full retirement age (which is currently 66), you can chose to file for benefits and then immediately choose to suspend taking your benefit. This will allow two things to happen. Spouse A may choose to file on Spouse B’s benefit, which may be higher - and sometimes much higher - than their own benefit. Second, Spouse B chose to suspend benefit payments and is still able to let their future benefit accrue to 132% of the amount they would have received at full retirement age. But make note: If this strategy is not in place by April 30, 2016, suspending benefits would also be suspending any spousal benefits. In other words, this strategy will be gone May 1st. There is another strategy for this group to consider, but it also applies to a second group.
If you were born after May 2, 1950 but before January 2, 1954, you cannot suspend your benefits without suspending a spousal benefit… but you can file still file restricted. Filing a restricted benefit means filing for a spousal benefit at full retirement age, while allowing your own benefit to accrue. At age 70, you then file for your own benefit at 132% of your full retirement age benefit.
If you were born after January 2, 1954, well, you might have better odds in Vegas. Neither of these strategies will be available to you. The irony is that your planning is now harder in some ways. Suspending your benefit has a very significant advantage in itself. Did you know that if you die while your benefits are suspended, Social Security will owe your family any retroactive benefits? But does it outweigh your spouse not being able to take a spousal benefit rather than his/her own? Then, there is the matter of the Crystal ball. How long will you live? Since there is no longer a middle road, how should you plan for the unknown?
“There is nothing permanent except change.” 1 After 2500 years, Heraclitus is still right. But the important thing is that you can plan and prepare for it.
- Greek Philosopher Heraclitus