MARCH 14, 2016 VOLUME 23 NUMBER 10
Our good friend Amos Goodall, a nationally-known elder law attorney in State College, Pennsylvania, wrote our newsletter for this week. Amos explains a particularly confusing and complicated issue.
The Social Security retirement program basically gives back, with some small interest, funds you and your employer have deposited into the system during your working career. There are several strategies which can increase your overall rate of return from the Social Security Administration. Recent changes to the law eliminate two of these, for folks who have not used them before April 29. One of the options ending is called “file and suspend”. The second is called “claim now; claim more later”. It is important to reiterate that the changes are not “grandfathered’, so claimants should consider whether to use these as soon as possible.
Social Security benefits are classically based on a wagearner’s history of compensation, using the highest thirty-five years of employment. The monthly benefit is based on the age of retirement factored into this average. A person who delays retirement until age 70 receives almost double the benefits of someone who files a claim early, at age 62. A chart showing the effect of delayed and early claims for retirement benefits may be found on the Social Security website.
Under current rules, if one member of a married couple has significantly higher earnings than the other, it is possible for the lower-earning of the two to get spousal benefits, which are set at up to half the higher wagearner’s amount. Thus, if on a particular couple’s earning’s record, one spouse had worked steadily in a profession and the other had interrupted her professional development to raise children, the spouse with higher earnings might qualify for $2,000/month benefits, while the other might be limited to $500, based on her earnings record. She may apply for spousal benefits and receive $1,000/month spousal benefits.
There are other situations where a claimant who has had little or no earnings may qualify for benefits based on someone else’s earning record; for example, persons who became disabled while children can qualify for benefits based on their parents’ earnings records. However, an element of these other benefits is that the parent has died or is drawing benefits himself or herself.
What if the higher wagearner is still working and wants to continue until age 70 to qualify for the higher benefit? Under current rules, a strategy called File and Suspend, the higher wagearner of a married couple can file a retirement claim at age 66 and then suspend the benefit. He or she will not be drawing social security, and delayed retirement credits will continue to accrue. Under current rules, if the higher wagearner’s claim has been suspended, the lower wagearner can still file a claim for spousal benefits.
Beginning April 29, if a couple has not already used this strategy, the right to do so will be lost. Under the new rules, with some limited exceptions, spouses and dependents cannot claim benefits if the primary worker has suspended his or her benefit.
One exception allows divorced spouses (who have not remarried) to file claims on their former spouse’s earnings record. Even if the former spouse suspends, the unremarried, divorced former spouse can still move forward with a claim for spousal benefits. This requires the couple to have been married at least ten years before the divorce.
A second strategy, called Claim Now; Claim More Later is also affected by the change. Under this strategy, if a spouse files only for spousal benefits, he or she may continue to work and obtain delayed retirement credits on his or her own earnings record. Then, at age 70, he can retire and obtain enhanced benefits due to a late retirement age. Under the changes effective April 29th, a claim filed is deemed to be requesting both spousal and direct benefits, so as to prevent this strategy.
Social Security benefits are complicated, and there are various retirement strategies available. This article covers only the general situation discussed, and there are other factors which may apply. If you think the old rules might apply, it is important to take action while you still can. Seek qualified professional advice as soon as possible, to beat the April 29 deadline.
Amos Goodall is a partner in the law firm of Goodall & Yurchak. He practices elder law and special needs planning; you can read more about Amos and his firm at the Goodall & Yurchak website, which contains links to a number of articles and resources you might find useful. Thanks, Amos!