Social Security Spousal Benefit – Rules Have Changed
In one of my previous Blogs I discussed the merits of possibly delaying your Social Security until age 70. Under optimal conditions this could mean many more thousands of dollars for your retirement over your lifetime.
One strategy popular with spouses was to delay their full Social Security and claim the spousal benefit. This allowed for spouses to claim half of what the other spouse would have received at their full Retirement Age. This also allowed time for her or his benefit to grow by 8% over 4-5 years.
This was seen by politicians as gaming the system so they changed the rules and phased out the spousal benefit. But they allowed some concessions. If you turned 62 prior to January 2, 2016, then here’s nifty strategy.
When you turn 66+ and are eligible for full retirement benefits from Social Security, you have the option of suspending your benefit until you turn 70. Social Security guarantees an annual 8% benefit increase for every year you wait. That 32% increase can be significant over time.
Once you suspend your benefit until you reach 70, you are eligible for 50% of what your spouse would have received when he/she reached their full retirement age.
For example, let’s say the husband’s benefit at age 66 was $1,500 per month. Now a couple of years later the wife is eligible for her benefit. Her full amount would be $2,000 per month. She suspends that benefit in favor of $750 as the spousal benefit. In 4 years, her benefit is now valued at $2,640 per month.
Why take the lower amount now? The reason is because over her lifetime it could worth thousands more than she would have received by claiming the traditional path.
The above scenario is precisely why President Obama wanted this loop hole closed. Too rich of a benefit.
Unfortunately, President Obama was successful and anyone who turned 62 after January 2, 2016, can no longer use the spousal benefit strategy.
However, they can still defer their benefit until age 70 gaining the generous 8% per year increase.
By delaying your benefits until later you are adding more pressure to your portfolio in the first few years of retirement. However, as the increased social security benefit comes into the picture the amount of reliance on your portfolio should diminish, thus may leave you with more money later in life.
Summary of Changes
In short, the changes to Social Security claiming strategies are summed up in the following bullet points:
- Folks who have already implemented a “file and suspend” strategy, they will be “grandfathered” and allowed to continue with their claiming strategy.
- Clients who qualify have until April 30, 2016, to implement a “file and suspend” strategy if they attain full retirement age by the end of this 6-month window. After this period, any request to suspend benefits will stop all payments of benefits on a worker’s record including spousal and other family benefits.
- For clients who will have reached age 62 by the end of 2015, it remains possible to file a “restricted.”
Decisions you make about Social Security are probably the most important and critical financial decisions you will ever make. Let a professional help you through the maze.
There are many factors that need to be considered before delaying full Social Security income. One needs to consider, health, financial standard of living requirements, taxes, insurance, the size of your portfolio etc. A well trained Financial Planner / Advisor will take the time to calculate your options and review the vest course of action.
Eugenio Financial can help. Just reach out anytime to —