Social Security’s most confusing rules

I’ve just returned from the annual InvestmentNews Retirement Income Summit in Chicago. It is one of my favorite conferences of the year, not just because of the excellent content, but because it provides me an opportunity to meet with readers face-to-face.

Based on their questions during the two-day summit, I have boiled down Social Security’s most confusing rules into this handy tip sheet for financial advisers and their clients.

—Purge “file and suspend” from your vocabulary.

This claiming strategy is no longer an option. Only people who were at least 66 years old by April 29, 2016, and who exercised this claiming strategy by that deadline are grandfathered under the old rules that allowed them to trigger benefits for eligible family members while their own benefits continued to grow by 8% per year up until age 70.

Under the new rules, a worker must collect Social Security benefits before a family member can receive benefits as a spouse or dependent child.

—Suspension still available but all benefits stop.

Workers can still suspend benefits at full retirement age or later to increase their future benefits, but under the new rules, all benefits stop during the suspension. No one can collect benefits on a worker’s record during that period and the worker cannot collect on anyone else’s record. There is an exception for divorced spouses. If an ex-spouse suspends benefits after April 29, 2016, his or her benefit would stop, but it would not affect benefits available to an ex-spouse.

—Only one spouse in a married couple can receive spousal benefits.

Millions of Americans are still able to exercise another valuable claiming strategy to maximize Social Security benefits, but they must be born on or before Jan. 1, 1954, to do so.

Assuming one spouse filed and suspend benefits before the April 29, 2016 deadline, or is collecting Social Security, the other spouse can claim only spousal benefits at age 66 and receive half of the first spouse’s benefit amount while their own retirement benefits continues to grow up until age 70. They must file for their own benefit at 70. It is not automatic.

People who were born after Jan. 1, 1954, will never be able to use this claiming option, known as “filing a restricted claim for spousal benefits.” Whenever they file for Social Security, they will be “deemed” to file for all available benefits and be paid the highest amount to which they are entitled based on their age at time of claim.

—Divorced spouses can each claim spousal benefits.

There is an exception for divorced spouses. If a couple was married for at least 10 years before divorcing and they have not remarried, each ex-spouse can file a restricted claim for spousal benefits on the other’s earning record at age 66, assuming they were born on or before Jan. 1, 1954. Younger divorced spouses lose this claiming option.

—Divorced spouses are independently entitled to claim benefits on an ex.

Unlike currently married couples, where one spouse must file for Social Security benefits before the other spouse can collect on a mate’s earnings record, divorced spouses can collect on an ex’s earnings record even if the ex has not yet claimed benefits.

To claim benefits as an independently entitled ex-spouse, the couple must have been married at least 10 years, divorced for at least two years and both be at least 62 years old. (But to collect only spousal benefits so their own retirement benefits can continue to grow up to age 70, the person claiming spousal benefits must be born on or before Jan. 1, 1954).

—Don’t confuse spouses and survivors.

Retirement benefits and survivor benefits are two different pots of money. If someone is entitled to his or her own retirement benefits and is also a surviving spouse or surviving ex-spouse, they can collect one type of benefit first and switch to the other later if it would result in a bigger benefit — regardless of their birth date.

Survivor benefits are available as early as age 60, but are reduced and subject to earnings restriction if claimed before full retirement age. Survivor benefits are worth the maximum amount — up to 100% of what the deceased mate or deceased ex-mate collected or was entitled to collect at time of death — if collected at full retirement age. Unlike retirement benefits, survivor benefits do not increase if collected after the survivor’s full retirement age.

For surviving spouses and surviving ex-spouse who have a large Social Security retirement benefits of their own, it may make sense to claim survivor benefits first and switch to a maximum retirement benefit at age 70. But for those whose biggest benefit would be as a survivor, they may want to claim reduced retirement benefits first and switch to maximum survivor benefits at full retirement age.