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Prepare for the Deadline to Max Social Security Benefits

Time is ticking for 'file and suspend' and 'restricted application' strategies

By Judith Chipps

Late last year, President Obama signed a law with some provisions taking effect on or about April 30, 2016 that will prevent some married couples from using key strategies to boost the amount of Social Security benefits they’ll receive. The “file and suspend” and “restricted application” techniques have let some couples increase their lifetime Social Security benefits by up to tens of thousands of dollars, according to The Wall Street Journal.  Here, Merrill Lynch Wealth Management Adviser Judith Chipps provides questions and answers about the new rules and how couples may want to rethink the way they plan for their retirement income.

What changed as a result of the new law?

The new law affects two techniques that couples used in determining how and when to receive Social Security benefits.

Before the new legislation, couples could “file and suspend” their benefits — that means one spouse who reached Full Retirement Age (typically the spouse who made the most money) could file for Social Security retirement benefits and immediately suspend them, while the other spouse could receive benefits based on the earnings record of the spouse who suspended benefits. The suspended benefits would grow by 8 percent a year until the spouse who suspended them turned 70 — getting what’s known as “credits for delayed retirement.”

(Social Security’s Full Retirement Age is 66 for people born in 1943 to 1954 and will gradually rise to 67 for people born in 1960 or later.)

But after April 29, 2016, “file and suspend” will no longer be allowed, which means that eligible spouses who want to use this technique will need to file and suspend benefits with Social Security before the deadline.

The other technique impacted by the new law, known as “filing a restricted application,” affects anyone turning 62 on or after January 2, 2016. Before the new law, a married person (and some divorced persons) who reached Full Retirement Age could claim Social Security spousal benefits without also being forced to claim his or her own retirement benefits, allowing the person’s own retirement benefit to continue to grow. Under the new law, anyone born after 1953 will no longer be able to claim a spousal benefit while deferring and receiving delayed retirement credits on their benefit.

What are my Social Security filing options before April 30, 2016?

If you were born before May 1, 1950, you can still file and suspend your Social Security benefits before April 29, 2016. Just bear in mind that every couple’s situation is different — what may work for one is not the same for all couples.

Also, given the late date, you may want to go through the file and suspend process online through the Social Security website, rather than trying to do it in person at a Social Security office. PBS NewsHour's Social Security writer Laurence Kotlikoff recently wrote that “many people are now being told they can’t get an appointment with Social Security before May.”

What happens if I have done “file and suspend,” but decide I need to take the suspended money now?

Currently, if you have done a file and suspend, you can ask for a lump-sum payment of your suspended benefits up to age 70. This may be a decision you make when, say, a spouse is 68 and is diagnosed with an illness requiring you to receive the money sooner.

But after April 29, 2016, lump sum payments will no longer be allowed.

So if you have done a file and suspend and think you’ll want to get your suspended benefits soon, it’s probably a good idea to apply for the lump sum soon.

Can I still file a restricted application?

Maybe. If you are married and 62 or older (born on or before Jan. 1, 1954) you can still file a restricted application. For example, if you are the lower-earning spouse and meet those requirements, you can file a restricted application, allowing your benefit to keep growing while you collect your spousal benefit until age 70.

Also, if you are already receiving a restricted application spousal benefit, you can continue doing so, because the law grandfathered you in. But if you’re under 62, you no longer can file a restricted application.

Assuming you qualify to be able to file a restricted application, you need to do the math and figure out what’s best for you. For example, if you are the lower-earning spouse and not working, can you live comfortably on your spouse’s income and your spousal benefit and wait to collect your retirement benefits until you reach Full Retirement Age?


What are some of the circumstances I need to examine?

Since it is still possible to suspend Social Security benefits and earn delayed retirement credits, couples should evaluate their entire retirement strategy to determine their best filing options.

For instance, married individuals are still eligible to claim payments worth up to 50 percent of the higher earning spouse’s benefit, if that amount is higher than payments based on the lower earning spouse’s work record.

Widows and widowers can still inherit their spouse’s benefit payment when it is higher than their existing benefit.

Remember this: all workers still have the option to increase their monthly Social Security payments by delaying claiming them up until age 70.

I’m married and nearing retirement age and was planning to use the file and suspend option. What should I do now that I can’t?

If you are still employed, you might consider working a few more years to build up additional savings and retirement credits. You should also look for ways to cut expenses to create additional savings that you’ll need in retirement.

If both of you are working, the best strategy will likely be for each of you to keep working as long as you can so you’ll get the largest Social Security benefits possible

What other strategies should I consider if I am nearing retirement age?

Every situation is different, so it’s important to work with your adviser about your goals or find one if you don’t have one. However, if you are nearing retirement age (age 55 and older), now is the time to consider re-examining income strategies.

For instance, you should maximize contributions to an IRA, 401(k) or other retirement account. You should also consider delaying taking Social Security benefits until age 70; by waiting that long, you might be able to collect 20 percent more from Social Security. This will improve your overall portfolio, because it means you will tap your other assets less later in life.

The Social Security website is helpful, too.

Judith Chipps is a senior vice President –wealth management with Merrill Lynch's CH Group in Encino, Calif. She is a Certified Financial Planner, a Chartered Financial Consultant and a Chartered Retirement Planning Counselor. Read More
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