The Apply and Suspend strategy will be eliminated on April 29, 2016, so you must act now to take advantage of it. For those of you who cannot use the Apply and Suspend technique, there is another way that you may be able to maximize your benefits, though, which involves filing a Restricted Application (also known as Claim Now, Claim More Later). The great news is that you can take advantage of this strategy until December 31, 2019, assuming that you were at least 62 years old as of December 31, 2015. If both you and your spouse have worked over the years, and if both of you have applied for benefits, Social Security will look at your earnings histories before they pay a benefit to either of you. If it is more advantageous for you to receive a benefit based on your own earnings record, that’s the benefit that they’ll pay you. If it is more advantageous for you to receive a spousal benefit, which is 50 percent of what your spouse gets, they’ll increase your benefit to equal that amount.
Under the old rules, there was nothing that prevented someone for applying for benefits, but restricting their application to their spousal benefit. Why bother? There is a very important reason. If you tell Social Security that you are specifically applying for just your spousal benefit, your own benefit will be increased by Delayed Retirement Credits that equal 8 percent every year. When you turn 70, you are not eligible to earn any more Delayed Retirement Credits, but you can then tell Social Security that you want to switch to your own benefit – which presumably at that point will be higher than your spousal benefit.
This strategy can allow eligible claimants to collect up to $60,000 in additional Social Security benefits. In order to make it work, though, all of the pieces have to fall exactly in the place. At Full Retirement Age, which is 66 for our purposes here, the spouse who wants to take advantage of it must file for benefits and specify that he is restricting his application to spousal benefits only. He can then collect spousal benefits until he reaches age 70.
Let’s look at an example. Mike and Mary are both 66, and since they were born between 1943 and 1954, are Full Retirement Age for Social Security purposes. Mike’s Primary Insurance Amount (PIA) is $2,000 and Mary’s is $800 and, both can file for these benefits now since they are 66. But what happens if Mary is the only one who files for her own benefit at age 66? Mike can then file for benefits, but restricts his application to just his spousal benefits. He collects $400 (half of Mary’s PIA) and, between them, they receive $1,200 from Social Security every month. When he turns 70, Mike can switch and collect his own benefit. By then, his own benefit has grown by 8 percent plus cost of living adjustments every year. Instead of receiving $2,000 every month, he will receive $2,920. Better yet, Mary can also switch and receive a spousal benefit that is half of Mike’s PIA – or $1,000. By taking advantage of this technique, Mike and Mary have increased their Social Security income significantly – and they receive it for the rest of their lives.
In order for this to work, the person who is filing the Restricted Application must be 66 or older. You cannot collect spousal benefits using this technique if you are younger than 66. Keep in mind, too, that this strategy will be eliminated in 2020. As long as you were born before 12/31/1953, you will be allowed to file a Restricted Application as soon as you turn 66. If you were born after 12/31/1953, you can’t take advantage of this option.
Are you confused about how the Claim Now, Claim More Later or the Apply and Suspend strategies can benefit you? Please do not ask your local Social Security office for advice, because they can only present your options about government benefits! The decisions that you make about this affect far more than just your Social Security benefits, and could have unintended complications and/or repercussions if they are not made considering the big picture.
Getting your Social Security decision right is important, but it is even more important that you have the right strategies for all of your planning. To find out if your entire financial house is in order, fill out this pre-qualification form by clicking here to see if you qualify for a free consultation. Western PA residents only please.
Don’t delay. Go to www.paytaxeslater.com/ss to get your free digital copy of The Little Black Book of Social Security Secrets, and then talk to a professional about your options before it’s too late.