Mass confusion over new Social Security rules

My email inbox is jammed with panicky inquiries from consumers and their financial advisers worried about beating the April 29, 2016 deadline to claim Social Security benefits under existing rules.

About half of them don’t need to worry because they want to claim only spousal benefits in order to allow their own retirement benefits to grow to the maximum amount at age 70. Filing for spousal benefits is not subject to the April 29 deadline.

Anyone who is 62 or older by the end of 2015, including those people who celebrated their 62nd birthday on Jan. 1, 2016, can file a restricted claim for spousal benefits when they turn 66. They do not need to do anything before then.

But in order to claim only spousal benefits, worth half of the other spouse’s full retirement age benefit amount, the first spouse must actually be collecting Social Security benefits or must have been old enough — at least 66 — to have filed and suspended their benefits by the April 29, 2016 deadline.

“Social Security’s longstanding practice considers a person attains his or her age the day before his or her actual birthday,” Social Security spokesman William Jarrett said via email. “Therefore, a person whose birthday is on April 30 attains his or her age on April 29,” Mr. Jarrett explained. “The latest effective date of birth to fall under the current rules is April 30, 1950, and the person would have to submit his or her request for voluntary suspension by April 29th.”

Filing and suspending under current rules by the April 29 deadline allows a worker to trigger benefits for a spouse or dependent child while their own benefit continues to grow by 8% per year up to age 70. A person also has the right to request a lump sum payout of suspended benefits any time up to age 70 instead of collecting the delayed retirement bonus.

Requests to file and suspend submitted on or after April 30, 2016, will be subject to a new set of rules. No one will be able to collect benefits on a worker’s earnings record during a suspension. The new rules, authorized by the Bipartisan Budget Act of 2015, also specifically eliminate the lump sum payout option which can be particularly valuable for single people who have no spouse to collect a survivor benefit after their death.

The Social Security Administration said it will honor requests to file-and-suspend benefits that are received before April 30, 2016, even if the agency is unable to process the application until after the deadline.

“If you submit your request before April 30, 2016, and your spouse or children become entitled to benefits either before or after that date, they will not be affected by the new rules and they will continue to receive payments,” the Social Security Administration said in documents posted on its website to explain the new rules.

But if someone requests to file-and-suspend benefits on or after April 30, he is subject to the new law and if his spouse or children were receiving benefits on his earnings record, their benefits would stop.

Divorced spouses are not affected by the new file-and-suspend restrictions. Even if an ex-spouse files and suspends his benefit, it will not affect the ability of a former spouse to collect benefits on his earnings record, the agency said.

But both spouses and ex-spouses who turn 62 after Jan. 1, 2016, will lose the right to claim spousal benefits only on their mate or ex-mate’s earnings record. Whenever these people claim Social Security they will be paid the highest benefits to which they are entitled, whether on their on earnings or as a spouse. They will never be able to claim only spousal benefits at full retirement age to allow their own benefits to grow up until age 70. That option will disappear starting in 2020 when the last of those currently grandfathered under the current rules reach their full retirement age.

Survivor benefits are unchanged under the new law. Anyone who is entitled to both their own retirement benefits and benefits as a surviving spouse will still be able to claim one type of benefit first and switch to the other later if it would result in a bigger benefit. And it doesn’t matter in which order they claim them.

For example, a widow with a small retirement benefit of her own may want to collect reduced retirement benefits as early as age 62 — assuming she is not working or not earning too much over the earnings limit of $15,720 — and switch to full survivor benefits at age 66. Survivor benefits do not earn delayed retirement credits, so it would make no sense to delay claiming them beyond full retirement age.

But if that widow had substantial earnings on her own work record, she might want to claim survivor benefits at 66 when the earnings cap disappears and allow her retirement benefits to continue to grow. At 70, she could switch to her maximum benefit.

Mary Beth Franklin is a contributing editor to InvestmentNews and a certified financial planner.