Alert – April 29, 2016 is the Filing Deadline for Social Security Benefits that will be Lost Under New Laws

The Bipartisan Budget Act of 2015 eliminated some great potential Social Security claiming strategies. However, people who have already filed are grandfathered in, and others may still be able to participate in these strategies IF they file by the April 29 deadline. Under current law, if you reached the age of 66, and waited to claim social security, you can “file and suspend” your retirement benefits, or file a “restricted claim for spousal benefits only” (see details below).However, these strategies will soon be lost under the new law.

Social Security Basics

You may start collecting Social Security benefits as early as age 62, but they will be permanently reduced by 25% or more for the rest of your life. If you wait until your normal retirement age (currently age 66 if you were born prior to 1954), you can collect your full retirement benefit even if you continue to work. However, if you delay collecting benefits beyond your normal retirement age, you can increase the amount by 8% per year up to age 70 (up to a 32% increase!). In addition, until the recent changes in law, there were several strategies to maximize your benefits even more.

File and Suspend Strategy

If you are 66 or older by April 30, 2016, you can still file and suspend your benefits by April 29, 2016.

The file and suspend strategy allows an individual to file for Social Security benefits, but opt to suspend actually receiving payments. This has several benefits:

  • Trigger Spousal Benefits (described below)
  • Trigger benefits for a minor dependent child (or permanently disabled child)
  • If you run into unforeseen circumstances, you can request a lump sum payout of all suspended benefits

Restricted Claim for Spousal Benefits Only

If you are 62 or older by January 1, 2016, you can still file a claim for restricted spousal benefits only (when you turn 66), assuming your spouse is already collecting benefits, or is old enough to file and suspend by the April 29, 2016 deadline.

In many cases, it makes sense for the higher earning spouse to delay benefits as long as possible up to age 70. This locks in the maximum retirement benefits, and the largest survivor benefit should he or she die first. Under the restricted spousal claim only strategy, married couples can coordinate their benefits to get a higher total benefits amount paid out. If one spouse has little or no work history the breadwinner can file and suspend their benefits at age 66, triggering the spouse’s eligibility to receive their spousal benefit. This allows the couple to receive the spousal benefit amount while the higher earner’s benefits are deferred until age 70 and maximized. If it is a dual income household, the spouse who has reached age 66 can file a restricted claim for spousal benefits only. He or she collects the smaller spousal benefit now, and then gets the bigger retirement benefit later.

Example: Husband and Wife are each entitled to $2,000/month in benefits at age 66. H files and suspends and collects nothing for four years. W files a restricted claim for spousal benefits only and collects $1,000/month (1/2 H’s full benefit) for four years. At 70, they can both switch to their full maximum benefit and receive $2,640/month for life.

The April 29 deadline is quickly approaching. There are a lot of nuances and planning considerations that can go into deciding when and how to claim your Social Security benefits. If you are eligible to file before the deadline, it is worth it to explore these options to lock in maximum potential in benefits. We recommend you talk with your financial advisor today.