TWO KEY CHANGES to Social Security retirement benefits were wrapped into the budget bill passed by Congress last week. The changes have big implications for married couples.
First, after April 2016, if you suspend your benefit, any family members collecting benefits on your earnings record will also have their benefit suspended. Second, those who aren’t age 62 by Jan. 1, 2016, will lose the right to file a restricted application, where you claim just spousal benefits, while leaving the benefit based on your own earnings record to continue growing.
For the uninitiated, all this might sound utterly baffling—and, trust me, it is—but Mike Piper has a good summary on his blog. I’ve been emailing with Mike, in an effort to get up to speed on the changes. Mike is revising his guide to Social Security, and hopes to have a new edition out before the end of the month.
In the meantime, I thought I’d spell out a few of the implications. The obvious: If you have reached your full Social Security retirement age of 66 and you’re thinking of using the “file and suspend” strategy, you need to move fast. The idea is to file for benefits, which is necessary for your husband or wife to claim benefits based on your earnings record. You then suspend your own benefit until as late as age 70, thereby increasing both your benefit and potentially also the survivor benefit collected by your spouse.
When it comes to filing restricted applications, those who will be age 62 by year-end will be grandfathered. That means that, once they reach their full Social Security retirement age of 66, they can apply just for spousal benefits, while leaving the benefit based on their own earnings record to continue growing. For this grandfathered group, often the best strategy will be for the lower-earning spouse to claim Social Security retirement benefits first. The higher-earning spouse, at age 66, then files a restricted application, claiming just spousal benefits, while leaving his or her own benefit to grow until age 70. That way, higher-earning spouses not only lock in the largest possible monthly benefit for themselves, but also a larger survivor benefit for their spouse, assuming the higher-earning spouse dies first.
What about those affected by the new rules? Much will depend on the relative ages of the spouses, the relative size of their benefit and the state of their health. Still, for most folks, the top priority remains the same: You want the higher-earning spouse to delay benefits until age 70, thereby ensuring both a maximum monthly benefit for that spouse and also a maximum survivor benefit.
This strategy will be a lot more palatable if the higher-earning spouse is older than his or her wife or husband. If the higher-earning spouse is, say, three or four years younger, there will be a greater temptation to claim benefits before age 70. Why? First, the lower-earning spouse can’t receive spousal benefits until the higher-earning spouse files. Second, because of their relative ages, there’s less chance the higher-earning spouse will die first—and thus there’s less chance the survivor benefit will prove important.