The Bipartisan Budget Act of 2015 has brought an end to one of the most popular filing strategies for Social Security applicants. The file and suspend option expired after Friday, April 29, 2016, and those who elect to delay receiving their retirement benefits will also no longer be able to request a lump-sum payment of delayed benefits if they elect to stop deferring their benefits. However, this does not mean that there are no viable claiming strategies left for retirees who want to begin or delay collecting their benefits.
Although the file and suspend strategy, which allowed married filers to suspend their benefits and then collect a spousal benefit while their own benefit grew at 8% per year until age 70 is being discontinued, filers still have a few other options to choose from that can increase the amount that they receive. One of the chief strategies that is left is known as the restricted application, which allows filers who have spouses who have already filed for their benefits to file for a spousal benefit while their own benefit continues to accrue. However, this option is also due to phase out eight years from now and is currently only available to filers who were at least 62 years old by the end of 2015. (For more, see: Social Security File and Suspend Claiming Strategy is Ending: Now What?)
This option differs from the file and suspend strategy because in the restricted strategy, the filer’s spouse must have already established an application date and the filer files for only the spousal benefit and not their own. But there is now a sunset provision in place for this option as well, and while this option will exist for another eight years, those who qualify for it should take heed of when it will expire.
This finally leaves filers with the most basic question of when they should begin receiving their own benefits. And in many cases, there is not necessarily one best answer, and the success of whatever choice that is made often depends largely upon when the filer dies. Those who live to a ripe old age, such as in their nineties will probably be best off by waiting to collect their benefits until age 70. But those who do so and die soon afterwards would most likely have been better off by collecting benefits at an earlier age. Social Security planning is therefore largely contingent upon the accurate projection of the filer’s longevity, which can be difficult in some cases. For example, a filer who has a family with a history of longevity into their nineties may feel inclined to wait to collect benefits, but if this person is a heavy smoker and drinker unlike his or her ancestors, then making it to age 90 may be much less probable. (For more, see: Tips on Delaying Social Security Benefits.)
Another key factor that planners need to take into account when planning for Social Security is the age at which the client would like to retire. If the client is planning on working until age 70, then delaying benefits is much more likely to be a good idea, although not always. In some cases, the client may be better off by filing for benefits at full retirement age and putting the money away in savings in a traditional or Roth IRA while they continue to work. Or they may even be better off by taking early Social Security and saving their benefits while they continue to work until at least age 66. Of course, the viability of this strategy depends heavily upon the rate of return that is earned in the IRA or savings account, and those who follow it will probably need to invest at least a good portion of their savings in equities in order to make this work.
Other issues that can affect when to file include the client’s retirement goals and when they would like to stop working versus when they are able to and the client’s income needs during retirement. The amount of life insurance that is carried by both spouses can also impact when benefits should be applied for. In many cases, planners are going to need to employ a sophisticated analyzer that can compare several different scenarios to see which option will be the best and the most likely. (For more, see: 4 Unusual Ways to Boost Social Security Benefits.)
The Bottom Line
Although one of the best filing options for Social Security has expired, applicants still have several choices that they must make when they file for benefits. Filers should not hesitate to enlist professional help when it comes to making this decision. There are several factors and variables involved that must be taken into consideration in order to make the best possible decision. (For more, see: How to Boost Social Security Spousal Benefits.)