A year ago today the Bipartisan Budget Act (BBA) of 2015 was signed into law. The rule changes moved to simplify the system and close what are now being called “loopholes.” The simplified rules mean that once an individual files for any of their Social Security benefits, they are deemed to have filed for all Social Security benefits for which they are eligible. Suspension of benefits will allow for Delayed Retirement Benefits to begin to accrue. However any benefits based on the wage earners benefits are also suspended, and when benefits are re-filed there are no retroactive benefits available.
One Year Later…
File & Suspend is a Thing of the Past
The limited conditions that allowed applicants to file using “File and Suspend” strategy expired this spring on the April 29th. The conditions limited this filing strategy to married individuals born no later than April 30, 1954, with an April 29th filing deadline.
Restricted Application is Still in Play with Limited Conditions
Limitations were also placed on the “Restricted Application” strategy, but unlike “File and Suspend” a filing deadline was not attached. This strategy is still available for applicants born no later than January 1, 1954, at Full Retirement Age who are eligible for spousal benefits.
That means anyone who was born on January 1, 1954, or earlier is still able to restrict their Social Security filing to just one available benefit. The most popular way to use this option is to restrict filing to spousal benefits only so that one’s own retirement benefit can grow at 8% annually with Delayed Retirement Credits. Note that for an individual to use this option they will need to wait until Full Retirement Age, or age 66 for those able to use the Restricted Filing option. Otherwise, they are deemed to have filed for all available benefits per the law prior to the BBA.
Social Security Planning Continues to be Important
The elimination of “File & Suspend” and limited conditions placed on “Restricted Application” strategies doesn’t mean that retirees can’t or shouldn’t, optimize their Social Security claiming strategy. While most Americans say they want to maximize their benefits, the most popular age to claim Social Security is 62, even though delaying increases benefits by 8% each year until age 70. Only 3% wait until turning 70 to start collecting benefits.
Defining the client’s goals and making assumptions about life expectancy, Cost of Living Adjustments, and the opportunity cost of taking Social Security later rather than earlier add to the complexity of Social Security planning. What should be optimized is highly dependent on each situation. Does the person have enough assets to retire at 62 or earlier without Social Security benefits? If not, are they able to continue working to increase benefits later? What is the life expectancy of the person, and what is it for their spouse? What would their financial situation look like if the person or their spouse lived longer than expected?
Since arriving at an optimal Social Security claiming strategy is complex, Silver and TOTAL include Social Security models showing multiple strategies. The models focus on maximizing the income received from Social Security.
TOTAL’s Social Security model includes a breakeven report to highlight when total income received from one strategy outpaces another. The report shows the cumulative benefit per strategy at each age, making it easier to discuss the trade-offs associated with taking benefits early or late in relation to life spans. See TOTAL’s sample Social Security strategy reports for more pages.
In addition to evaluating the total income received from the various Social Security strategies, Silver’s What-If? makes it easy to compare the impact of strategies on the client’s retirement success. Also check out Silver’s sample Social Security strategy reports.
Learn more about the Social Security models in Silver and TOTAL by reviewing the user guides:
Social Security Terminology
Primary Insurance Amount (PIA):
This is the amount that all benefits are based on. A worker’s PIA is determined by a formula that looks at the top 35 years of earning history, adjusted into today’s dollars. If a claimant files at Full Retirement Age, they receive a benefit equal to their full PIA every month. Full Retirement Age is determined by year of birth according to the table on the right. Note that individuals born on January 1 are deemed to have been born in the previous year for determining Full Retirement Age.
Full Retirement Age:
If a claimant files at Full Retirement Age, they receive a benefit equal to their full PIA every month. Full Retirement Age is determined by year of birth according to the table on the right. Note that individuals born on January 1 are deemed to have been born in the previous year for determining Full Retirement Age.
|Year of Birth
1960 and later
|Full Retirement Age
66 and 2 months
66 and 4 months
66 and 6 months
66 and 8 months
66 and 10 months
It is possible to claim Social Security retirement benefits as early as 62, however doing so permanently reduces the amount of benefit. The amount of reduction depends on the claimant’s Full Retirement Age and whether they are claiming their own retirement benefit or spousal retirement benefits.
It is also possible to claim Social Security retirement benefits after Full Retirement Age. There is no benefit to claiming spousal retirement benefits after Full Retirement Age. However, when claiming one’s own retirement benefit there are Delayed Retirement Credits applied for each month delayed past Full Retirement Age that equals 8% annually. This increase stops at age 70, so that while it is possible to claim benefits after age 70, there are no further increases after age 70.
When comparing Social Security claiming strategies, one important detail to be aware of is that the optimal strategy depends, in part, on the life expectancy of the claimant(s). Delaying claiming past 62 increases monthly income but also means giving up income for a certain number of months. The breakeven point is when a certain strategy with higher income has “caught up” to, or provided the same or more lifetime income than, an earlier claiming strategy. The age that this occurs depends on the situation, as well as future Cost of Living Adjustments made by the Social Security Administration, and the opportunity cost of spending money from other sources in order to delay claiming benefits.
Spouses, and in certain cases ex-spouses, are entitled to a portion of a worker’s retirement benefit after the worker has filed for retirement benefits. If taken at Full Retirement Age this equals 50% of the worker’s PIA. This benefit is reduced when taken early but can be claimed as early as 62. Spousal benefits are not eligible for Delayed Retirement Credits so while they can be claimed after Full Retirement Age there is no advantage to doing so.
ONLY AVAILABLE FOR THOSE BORN ON OR BEFORE 1/1/1954
When a worker is eligible for both spousal retirement benefits and their own retirement benefits and has reached at least Full Retirement Age, they are able to restrict their filing application to one or the other. This is typically done to claim spousal benefits without also claiming their own retirement benefits since their own benefit will then continue to grow while spousal benefits do not increase after Full Retirement Age. Restricting the filing is necessary because the Social Security Administration deems filing for one benefit as filing for all eligible benefits without this election.