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Pay yourself now, and more later: Do you qualify for Social Security restricted spousal benefits?

| September 19, 2017

Many people are aware that it’s possible to claim a benefit on their spouse’s Social Security record. In general, an individual who qualifies for Social Security retirement benefits is entitled to the higher of their own benefit, or one-half of their spouse’s benefit. One notable change to spousal benefits is whether an individual first has to file on their own record to receive any spousal benefits, or if they can file a restricted application only, leave their own record closed and receive one-half of their spouse’s benefit.

First, a little history. On November 2, 2015, the Bipartisan Budget Act of 2015 was signed into law. This eliminated a filing strategy known as “file and suspend,” allowing for a 6-month grandfather period to those who qualified for this strategy by April 30, 2016. It also eliminated the ability to take a retroactive lump sum payment, in lieu of higher monthly payments, for those who had suspended benefits. This technique may have been beneficial to an individual, suspending their benefit, and was suddenly diagnosed with a terminal illness.

The third strategy the Bipartisan Budget Act of 2015 affected is the ability to file a restricted application. With a restricted application, you would restrict your application to benefits you would receive from your spouse’s Social Security record only. This would in effect, leave your benefit turned off, allowing you to earn delayed credits. These credits compound at approximately 8% simple interest annually, and delayed credits may continue through age 70. For example, if your full retirement age, FRA, is age 66 and your retirement benefit on your own record is $1,000 per month, your benefit could potentially increase to $1,320 per month if you delayed your own benefit until age 70. (8% x 4 years = 32% delayed credits. $1,000 x 1.32 = $1,320.) Note, the restricted application strategy is only available to individuals who have attained FRA, approximately age 66.

In the future, individuals filing for spousal benefits will be subject to the “deemed filing” rules. When they file they will be deemed to have filed for their own benefit, losing the ability to earn delayed credits. The only way they will receive any spousal benefit would be if one-half of their spouse’s benefit, already being received, is higher than the individual’s own benefit. In that case, they would receive a spousal “add-on” for the difference between their own benefit and one-half of the spouse’s benefit. By way of example, if John was receiving his own FRA benefit of $2,500, and Mary files for her FRA benefit of $1,000, Mary would receive her benefit plus a spousal add-on benefit of $250. ($2,500 x 50% = $1,250.  $1,250 - $1,000 = $250 spousal add on.) This would bring Mary up to the benefit she qualifies for, which is the higher of her own or one-half of her spouse’s.

And here’s where the planning opportunity comes in. For individuals who were 62 prior to 2016 and born before 1954, the restricted application strategy is still available. In addition, these individuals could not have filed for benefits previously, and their spouse must currently be receiving benefits. If you are currently FRA, this opportunity to pay yourself now - and pay yourself more later – may exist. However, the window of opportunity to maximize this benefit and the length of time to benefit from this strategy are beginning to close. Do you qualify? 



Pete Ruma, CFP®, CLU, ChFC, was one of the founding members of Gould Ruma Financial Advisors in 2008 and now serves more than 200 clients who have entrusted him with their financial planning and asset management needs. Pete has more than 30 years of experience in the financial planning industry, and he has worked with many of his clients for nearly as long. He sees the reward of the long-term planning relationships he forges with his clients as the “a-ha” moment, when their focus shifts from a single piece to how the pieces of their overall financial puzzle come together. His primary goal is to help his clients simplify their lives by focusing not on financial outputs but financial outcomes.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.