If you and/or your spouse are already collecting social security, chances are you’re working the system as much as possible to maximize those benefits. Workers who have contributed taxes to social security during their lives can begin collecting monthly payments at age 66. Just as retirement itself changes – as we explained in our infographicThe Evolution of Retirement – social security is changing along with it, as it remains an essential component of retirement.
If you aren’t living under a rock, you’ve heard all the media debate over the death of social security and whether or not it’ll still be around in the future to help the current young ones retire. As a start to the Social Security reforms intended to avoid this crisis, the government has effectively put an end to 2 common maximization strategies – File and Suspend, and Restricted Application – through the Bipartisan Budget Act of 2015.
1. File and Suspend
What is it? One spouse files for SS benefits but then suspends those benefits. However, because this spouse has technically filed, the other spouse can now claim spousal benefits. Meanwhile, the first spouse’s benefits will continue to grow through delayed retirement credits.
Here’s an example. Mike is 66 and Tina is 62. Mike files for his social security benefit which would come out to about $1200 monthly. He then suspends receipt of his benefits but his wife Tina – who is not yet at full retirement age – can already claim her spousal benefits of about $400 monthly. This way Mike and Tina can already receive some income while the rest continues to grow until Mike officially claims his delayed retirement benefits at age 70. It’s the best of both worlds and a very common strategy.
2. Restricted Application
What is it? One spouse is already receiving retirement benefits and the other spouse, who is also of retirement age already, claims spousal benefits. Because the second spouse is of retirement age, he/she does not need to claim his/her own benefits and can allow them to grow until age 70. Yet another method of both receiving income and letting the rest of your income continue to grow.
The Bipartisan Budget Act of 2015 puts an end to both of these maximization strategies in Section 831 – Closure of Unintended Loopholes. Though these strategies did help maximize benefits, they also contributed to the looming depletion of future social security benefits. This is only effective for people who are beginning to collect after April 30, 2016. If you’ve already implemented these strategies before April 30, then you can continue to use them.
For everyone else, the good news is that there are sources of retirement income other than Social Security. While you can still receive your Social Security benefits, it may be wise to not rely on that for 100% of your income. Instead, it’s recommended to put money aside in IRAs or 401ks or even delay taking benefits to as late as 70 years old. Start thinking of Social Security more as a supplement to income, as it was intended to be, and speak with your advisor to set a strategy for your best retirement.
Investment Advisory services offered through Global Financial Private Capital, LLC., an SEC secured Registered Investment Advisor. Only Charles Ragonese of Mountain Peak Financial, Inc. is licensed to give investment advice.