Boomers who are in their sixties, tune in: The Social Security Administration has finally issued official guidance on the phaseout of two popular claiming strategies, and if you qualify, you need to act quickly.
The agency issued an emergency message to its field offices on February 18 regarding the phaseout of the benefits of the file and suspend strategy. If you will be full retirement age of 66 or older by the end of April, you need to consider immediately whether you should file and suspend your benefit because the deadline to make that move is April 29 — a day earlier than most experts expected. The agency says it will honor file and suspend requests made by April 29, even if the agency does not process the request until after that date.
Filing and suspending by April 29 has a few advantages. Primarily, it will allow a lower-earning spouse to claim a spousal benefit or minor children to get benefits off your record while you delay taking your benefit, which will earn 8% a year in delayed retirement credits until you turn 70. Under the new rules effective April 30, a married spouse who suspends his benefit also suspends all other benefits, such as a spousal benefit, paid off his record.
Suspending a benefit by the April deadline also allows you to get a larger lump sum if you later decide delaying was a mistake. Under the old rules, if you file and suspend your benefit while it earns delayed credits, you can later change your mind and get a lump sum of benefits going back to the day you filed. (Your monthly benefit would also revert to the amount it was worth on that date, wiping out the delayed credits.) As of April 30, this move is no longer possible.
One piece of good news: The guidance confirms that a divorced spouse doesn’t have to worry if an ex suspends his benefit. If one ex-spouse decides to suspend his benefit, the other ex-spouse can still apply for spousal benefits off his record, if she meets the eligibility requirements to qualify for that benefit.
The agency also issued guidance on the other claiming strategy that is phasing out. The agency confirms that those who were born on January 1, 1954, or earlier still qualify to use the “restricted application” strategy. This strategy allows an eligible beneficiary who is full retirement age to apply for a spousal benefit only, while allowing his own benefit to earn delayed credits.
Also, a spouse born on January 1, 1954, or earlier who takes her own benefit early but becomes eligible for a spousal benefit once her spouse has applied for his benefits won’t automatically have to claim the spousal benefit if it’s higher. She could choose to wait to bump up to the higher spousal benefit once she turns full retirement age. (Under the rule changes, those born after January 1, 1954, are automatically given the higher of their own or their spousal benefit, once they are eligible for both benefits.)
But beware if you are eligible for both strategies: Make sure you don’t want to use the restricted application strategy before filing and suspending, because you can’t do both. Run your numbers and see which strategy will pay out more before making any move.