How This Affects Your Social Security Decision
As part of the recent budget agreement, Congress has ended the ability for most individuals to
employ certain Social Security spousal claiming strategies. This includes the popular “File and
Suspend” and “Restricted Application” strategies that were available for those individuals who
delayed claiming Social Security past Full Retirement Age (FRA). With these in mind, it’s important
to review your Social Security filing strategy with your Edward Jones financial advisor and discuss
your options.
Background on Spousal Benefits
With spousal benefits, one spouse can receive up to half of the other spouse’s FRA benefit (offset by his or her own
retirement benefit). But spousal benefits are only available if the other spouse has filed for benefits – meaning that if
a person delays filing for benefits, the spousal benefit would also be unavailable.
To address this, some spousal claiming strategies allowed a married couple to be able to receive some Social Security
benefits at the same time one or both spouses were delaying filing for benefits past FRA. These strategies provided an
opportunity to make the decision to delay claiming Social Security past FRA a bit more attractive by providing a source
of income during these “delaying years.”
Congress Eliminates the Following
Spousal Strategies for Most Individuals
1. File and Suspend
Since spousal benefits are only available if the other
person has filed for benefits, when that person reached
FRA, he or she could file for benefits and then suspend
receiving them. This would allow the spouse to begin
receiving spousal benefits (if eligible) while allowing his
or her own “suspended” benefit to continue to grow by
8% per year due to delayed retirement credits.
What’s Changing: Suspending your benefit now also
suspends the spousal benefit. (and any dependent benefits).
What This Means: If you delay (or suspend) claiming your
Social Security benefit to allow it to grow, any spousal
benefit will be unavailable until you begin receiving your
retirement benefit.
What About Individuals Already Using This Strategy?
For those individuals who’ve reached FRA and suspended
their benefit, and have spouses receiving a spousal benefit,
their spouses will continue to receive the spousal benefit.
Anyone at FRA or older who is considering employing
the File and Suspend strategy must do so before April
30, 2016.
2. “Restricted” Spousal Application
When reaching FRA, a person could file for a spousal
benefit instead of filing for his or her own benefit
(assuming the spouse had already filed for benefits).
This allowed his or her own benefit to continue to grow
while receiving a full spousal benefit (half of the spouse’s
benefit) in the interim.
What’s Changing? Congress has eliminated the ability to
“choose” which benefit you receive if you delay past FRA.
Essentially, whenever you file for benefits, you are deemed
to be filing for your own retirement benefit first; then you
will receive a spousal benefit if you are eligible. You cannot
choose which benefit you receive and then switch later.
What This Means: Restricted Spousal Application will
no longer be available for anyone born after 1953. If you
delay filing for Social Security past FRA, you can no longer
receive a spousal benefit in the interim.
What About Individuals Already Planning to Do This?
Individuals born in 1953 or earlier still have the ability to
employ this strategy and restrict their application to the
spousal benefit when they reach FRA (and then switch
back to their own benefit at a later date). This assumes
two things: They do not file for benefits before FRA, and
their spouse has filed for benefits (so the spousal benefit
would be available).
Retroactive benefits: There was also a little known provision whereby you
could “undo” your suspension decision and receive retroactive benefits,
in a lump sum, (at your FRA benefit level). With this legal change, you can
no longer receive retroactive benefits for years you suspended.
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IPC-9685A-A EXP 31 JAN 2017 © 2015 EDWARD D. JONES & CO., L.P. ALL RIGHTS RESERVED.
Congress Eliminates Spousal Social Security Strategies –
These changes only affect strategies for those who
were considering delaying past FRA. While these
spousal strategies could have made the decision to
wait past FRA a bit more attractive, their removal does
not necessarily make waiting to file unattractive, and
it does not affect those planning to wait until FRA.
Before you make the decision about when to file for
Social Security, consider the following:
Early vs. Delayed – Longer Potential “Break-even”
after FRA: Your benefits will still be reduced by as
much as 25%–30% if you file for Social Security early.
They could increase by as much as 32% over your FRA
benefit if you defer taking benefits until age 70.
Whether you choose to delay or not may depend on
what’s more important to you: receiving a smaller
benefit for a longer period of time or receiving a larger
benefit for a shorter period of time. The elimination of
these spousal strategies could make the time before
you “break even” longer if you planned on delaying
past FRA – meaning it could take a few more years to
make up for the difference in waiting.
That said, the better your health and the longer you
and your spouse expect to live, the more it may make
sense to delay taking Social Security. This assumes you
don’t need your benefit earlier and won’t be putting
undue strain on your investments.
Spousal/Survivor Benefit Considerations: Since
spousal benefits will not be available until the first
spouse files, the longer one spouse waits to claim,
the longer the spousal benefit will be unavailable. So
it’s important to understand how this affects your
retirement income during the “delaying period.”
It’s also important to consider how your decision
affects survivor benefits. Survivor benefits are 100%
of your benefit or your surviving spouse’s, whichever
is higher. By waiting and receiving a higher Social
Security benefit, you also can help provide higher
income for your surviving spouse when you pass away.
If you are entitled to survivor benefits but have not
filed for Social Security yet, you still have the ability to
claim either your survivor benefit or retirement benefit
first and switch to the other at a later date.
Social Security and Your Retirement
Ultimately, when to file for benefits is a personal
decision that may depend on a number of factors,
including your life expectancy, if you plan to continue
to work, if you need the money to support your
retirement, and the effect on your spouse. We call
this our LENS (Life Expectancy, Employment, Need,
Spouse) framework.
These examples are not meant to be exhaustive,
so it is important to work with the Social Security
Administration for a full discussion of your available
benefits and options. Before making any decisions,
consult with your qualified tax advisor. Your financial
advisor can then work with you to see how Social
Security and your investments fit together within
your overall retirement income picture.
Scott Thoma, CFA Investment Strategist
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Additional Information
For answers to specific Social Security questions,
please contact the Social Security Administration at
800-772-1213 or www.ssa.gov.
Edward Jones, its employees and financial advisors
cannot provide tax or legal advice. You should consult
your attorney or qualified tax advisor regarding your
situation. This summarization should not be depended
upon for other than broadly informational purposes.
Specific questions should be referred to a qualified
tax professional.
www.edwardjones.com
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IPC-9685A-A EXP 31 JAN 2017 © 2015 EDWARD D. JONES & CO., L.P. ALL RIGHTS RESERVED.
What to Consider If You’re Close to
Claiming Social Security