My virtual mailbag is bursting at the seams with questions from
InvestmentNews readers about how new regulation will affect
Social Security claiming strategies for current and future retirees.
First, let me stress that no one who is currently collecting
Social Security benefits will be affected by the prospective changes to rules determining who can file and suspend
Social Security benefits to allow a spouse, dependent or disabled child to collect auxiliary benefits while the wage earner's retirement benefit continues to grow until age 70.
Second, the
Social Security Administration has not yet issued any official guidance on the new rules. Consequently, industry experts are left to their own devices to interpret the effective date of the new regulations. President Barack Obama signed the Bipartisan Budget Act of 2015 into law on Nov. 2. The new regulations will take effect 180 days after enactment.
Until SSA issues an official pronouncement, I will assume that April 30, 2016, is the deadline for requests to file and suspend under current rules. (That means anyone who was born on May 1, 1950, or earlier can file and suspend under existing rules by April 30, 2016. Those born on the first of the month are eligible to claim
Social Security benefits in the prior month.)
Separately, anyone who is 62 or older by the end of 2015 (including anyone born on Jan. 1, 1954 or earlier) retains the right to claim spousal benefits only when they turn 66, allowing their own benefits to accrue delayed retirement credits of 8% per year up to age 70.
Here's a sample of some of the questions I have received since the new legislation was passed.
Q: I have married clients where both the husband and wife turn 66 in April 2017. Their plan was to have the husband file and suspend at 66 to trigger a spousal benefits for his wife while his own retirement benefit would continue to grow up until age 70. At 66, the wife planned to file a restricted claim for spousal benefits. Can they still do this?
A: No. Because both the husband and wife miss the April 30, 2016, deadline, neither of them can file and suspend their benefits when they turn 66 in April 2017 and trigger spousal benefits for the other. But they both meet the cutoff of attaining age 62 the end of 2015. That would allow one of them to file a restricted claim for spousal benefits once the other spouse began collecting Social Security.
Q: My wife is four years older than I am and doesn't have 40 quarters of Social Security credits, so she is only eligible for spousal benefits. I just turned 62 and continue to work. What are my claiming options?
A: That's a tough one. You are too young to be grandfathered under the existing file and suspend rules. That means you actually have to collect Social Security so your wife can claim a spousal benefits. If you claim benefits at 62 and continue to work, you could forfeit all of your benefits — and those of your wife — if you earn too much above the 2016 earnings cap of $15,720. You'll probably have to wait until you turn 66 — and your wife turns 70 — to collect your retirement benefits and to trigger spousal benefits for your wife.
Q: How do the new rules affect divorced spouses?
A: Ex-spouses are subject to the same grandfather provision as married couples. As long as you are 62 or older by the end of 2015, you retain the right to claim spousal benefits only at 66, allowing your own retirement benefit to continue to grow up until age 70. Those who are younger than 62 by the end of 2015 lose the right to claim spousal benefits only. That means when they claim Social Security, they will be paid the highest benefit to which they are entitled, whether on their own earnings record or as a spouse
Q: Are there any changes to survivor benefits rules?
A: No. Surviving spouses who are also entitled to both retirement benefits on their own earnings record can still choose to claim survivor benefits first and switch to their own retirement benefits later, or vice versa, if that would result in a larger benefit.
Q: Will people who file and suspend in the future still be able to request a lump sum payout of suspended benefits?
A: No. Anyone who files and suspends on or after May 1, 2016 will no longer be able to request a lump sum payout of suspended benefits.
Mary Beth Franklin is a certified financial planner.
