How Recent Provision Changes Affect Your Social Security Benefits

April 11, 2017

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In November of 2015, Congress and the President -  through the Bipartisan Budget Act - changed two spousal claiming options regarding Social Security. The first change was the elimination of the “File and Suspend” provision, which allows one spouse to file for benefits at age 66 and then immediately suspend those benefits and wait until age 70 to claim them (thus earning an 8% delayed credit for each year between 66–70).

Most importantly, this change - made effective on April 29th, 2016 -  gives the spouse the ability to claim benefits immediately. Under the new law, if the Primary Worker (whose record it is on) suspends his/her benefits, all people (spouse, children) claimed on his/her record also must suspend their benefits.  

The second change was the elimination of the “Restricted Claiming Provision” as it relates to Spousal claiming benefits.  Under this provision, one spouse can file for benefits on their own record, anytime after age 62 (assuming they weren’t working due to the Earnings Test). This allows the other spouse to claim spousal benefits (Restricted Claiming Provision) - when they turn 66 -  while still deferring their own benefits until age 70.  

Using myself as an example: My wife will claim her own benefits when I turn 66, which allows me to collect 50% of her 66 benefits while delaying my own benefits until age 70.  I feel that this provision had a greater impact than the File & Suspend provision.  There was a grandfather provision in the law change, and in order to take advantage of the Restricted Claiming Provision, one had to be born prior to January 2nd, 1954. I was born in 1952, so I can take advantage of this grandfather provision under the new law. My brother and his wife, however, won’t have the same option since they were both born in 1954.  Who said life was fair?

So, if we have a couple who were both born after January 2nd, 1954, the only real decision they have to make (as it relates to claiming Social Security) is when they want to claim their own benefits.  In the case of my brother, if he decides to delay his own benefits until age 70, he cannot receive spousal benefit while waiting.  

This is where integrated planning of all other assets/resources comes into play.  He has only 3 real options to choose from.

He can:

  1.  Liquidate Financial Assets (401k’s, IRA’s, Etc.).  
  2. Continue working either fulltime or part time.
  3.  Explore using the equity in his home (Reverse Mortgage – Next Month’s Newsletter) to create income while waiting.  

Another option is having the lower income spouse claim their own benefits while the higher earning spouse delays until 70.

What if one spouse was born prior to January 2nd, 1954 and the other spouse was born after that date?  (See this month’s case study) In this case we might have the younger spouse claim their own benefits when the older spouse turns 66. This would still allow the older spouse to use the Restricted Claiming Provision while postponing their own benefits until 70.  There are several issues that need to be explored before doing this - primarily the Earnings Test (lose $1 for every $2 in earnings above $16,920) - which is still in play for the younger spouse and will affect both spouses benefits.

As you can see, there is still a tremendous need for planning and exploring all one’s options before claiming. Always practice the carpenter’s rule: measure twice, cut once. There are no mulligans on the back nine!

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Dave Zander

Back Nine Financial

After spending the first 25 years of his career on what he calls the “front nine” (the accumulation phase), Dave has dedicated the last 16 years to the “back nine” (the income phase). He ran both Aetna’s and Lincoln National’s income divisions before starting Back Nine Financial in 2005. Back Nine is strictly an educational, consulting and speaking firm. He primarily works with CPAs, corporations and individuals to help them understand and maximize Social Security benefits. Dave has conducted Social Security Workshop across the country for a variety of audiences, including the Texas CPA Tax Institute and the CPA societies in Houston, Dallas, San Antonio and Austin for each of the last 3 years. With 10,000 Baby Boomers turning 66 every day for the next 17 years, Dave feels it is incumbent upon financial advisors, CPAs, HR departments and other professionals to make sure their clients, employees and the American public best understand not only how to take Social Security, but to also understand and integrate that claiming decision with their other assets.
 Dave is a graduate from the University of Wisconsin – Whitewater with a BBA, majoring in marketing with a minor in accounting. He left EF Hutton and gave up Wisconsin winters in 1983, moving to Houston where he met Diane. They been married 30 years and have been blessed with 2 children, Macy and Miles, who have now graduated from college and are on their own. Dave & Diane live outside of Boerne, TX.
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