I don't know who is more frustrated about the rash of bad advice being doled out by Social Security Administration staffers recently — financial advisers, their clients or me.
More than a year after Congress approved changes to Social Security claiming rules as part of the Bipartisan Budget Act of 2015, agency representatives continue to deny legitimate claims for spousal benefits by applicants who are clearly grandfathered under prior rules and tell other applicants they can take advantage of claiming rules that no longer exist.
Mark Beaver, a financial adviser with Benedict Financial in Atlanta, wrote to me about a recent client situation. The wife, age 67, claimed her Social Security benefit of about $1,100 per month when she reached her full retirement age in 2015. When the husband retired last year, Mr. Beaver recommended that he wait until he turned 66 to file a restricted claim for spousal benefits. That would entitle the husband to about $550 per month — half of his wife's benefit — while his own retirement benefit continued to grow by 8% per year up until age 70.
But when the couple visited their local Social Security office to apply for spousal benefits, they were told that was not an option. The SSA representative said the husband must first file for his benefits, immediately suspend them, and then the wife's Social Security benefit would be increased to be worth half of her husband's full retirement age amount.
This advice is wrong on so many levels that I almost don't know where to begin.
First, suspending benefits at full retirement age in order to trigger a benefit for a spouse or dependent or disabled child is no longer an option.
As the Social Security Administration clearly states on its website, “Under the new law, you can still voluntarily suspend benefit payments at your full retirement age (currently 66) in order to earn higher benefits for delaying. But during a voluntary suspension, other benefits payable on your record, such as benefits to your spouse, are also suspended. And, if you have suspended your benefits, you cannot continue receiving other benefits (such as spousal benefits) on another person's record.”
In order to be grandfathered under the old rules, one had to be at least 66 and have filed and suspended their benefits by the April 29, 2016 deadline.
“Obviously, this is not what we expected,” Mr. Beaver wrote. “We were under the assumption that since they were old enough when the rules changed, they could still take advantage of spousal benefits while deferring the husband's benefit. Are we wrong? What are we missing?”
No you are not wrong and the only thing that is missing is accurate advice from Social Security Administration staffers. Apparently, they need to read their own website to get the correct information.
As the website states in a series of frequently asked questions about the new law: “If you turn 62 before January 2, 2016, deemed filing rules will not apply if you file at full retirement age or later. This means that you may file for either your spouse's benefit or your retirement benefit without being required or 'deemed' to file for the other.” It continued: “You may also restrict your application to apply only for spouse's benefits and delay filing for your own retirement in order to earn delayed retirement credits.”
This is not an isolated case.
Samantha LeRette, manager of client services for Exemplar Financial Network in Crystal Lake, Ill., reported a similar experience.
Ms. LeRette said some of their clients were also getting bad advice from SSA. In one case, the husband is 72 years old and collecting his Social Security retirement benefits. The wife will turn 66 in May of this year. The husband's benefit is about $960 per month. The wife's benefit at her full retirement age is $1,760.
“We instructed the wife to ask Social Security what they needed to do for her to begin taking half of her husband's benefits at 66,” Ms. LeRette wrote. “Social Security responded that she is unable to do that because her benefit is higher than his,” she explained. “Is this correct?”
No it is not.
“SSA is wrong!” I replied. “Because the wife was born before 1/2/1954 she is eligible at 66 to file a restricted claim for spousal benefits and allow her own retirement benefit to continue to grow up until age 70. At 70, she can apply for her own benefit.”
(Questions about new Social Security rules? Find the answers in my new ebook.)
Mary Beth Franklin is a contributing editor to InvestmentNews and a certified financial planner.