Posts Tagged ‘Social Security’
November 9, 2015
For several years now, we (and many colleagues) have recommended an optimal Social Security claiming strategy for married couples where the older spouse “files and suspends” their own SS benefit at full retirement age (“FRA,” currently 66) and the younger spouse files for a spousal, not their own, benefit when they reach their own FRA. This approach allows each spouses’ own benefit to continue to increase for four more years until age 70 at c. 8% p.a., but provides a bonus for up to four years of spousal payments (1/2 the other spouse’s full benefit) to the younger spouse. For couples who do not have a pressing financial need for full benefits at age 66, this strategy has been shown to have the highest expected lifetime return.
No more. On November 2, the President signed into law changes to the regulations which eliminate this strategy forever. Critics in Congress had loudly complained that couples were taking unfair advantage of an unintended loophole in Social Security law changes that Congress enacted in 2000 in order to assist older workers forced to return to the workplace. What Congress giveth, Congress taketh away.
Going forward, the following couples will still be able to employ the strategy:
- Couples who have already fully employed the strategy (one spouse has filed and suspended, the other claimed spousal benefits) will not be affected.
- Couples where one spouse has already filed for benefits, or has filed and suspended, will not be affected so long as the other spouse was born in 1953 or before.
- Any individual who will reach 66 years of age, and files and suspends, prior to April 30, 2016 will maintain the strategy for their spouse (born 1953 or before).
For everyone else:
- The ability to file and suspend benefits will cease for everyone six months after the law was signed on November 2. Thus, starting May 2016, one spouse will have to fully claim their own benefit before a spouse can claim a spousal benefit.
- However, either spouse, if born 1953 or before, will still retain the ability to file for spousal benefits and later switch to their own larger benefit at age 70, so long as their partner has filed for their benefit (or filed and suspended by the six month deadline, or about April 30, 2016.)
- Anyone born after 1953 will have to choose either a spousal or their own benefit at the time of their initial SS claim and will not be able to switch benefits at a later time.
- Divorced spouses born after 1954 who are not already receiving benefits also will have to choose spousal or their own benefit at the time of filing and will not have the option to switch at a later time.
This is my best grasp of these latest changes to the Social Security claiming regulations, pending any further modifications. For a another write up, see http://www.socialsecuritychoices.com/blog/
My prediction: Financial planners are going to be very busy this holiday season revisiting assumptions in their plans for those clients who will be affected by these changes.
October 11, 2013
Generally, the highest lifetime return to be had from Social Security benefits is to wait until you are age 70 to begin taking distributions. This is due to the 8% automatic annual increase in benefit payments when the start is delayed to that age, and the fact that most of us will live past their early 80s when the amount received from taking benefits later outstrips that of taking them at the typical retirement age.
If you decide however to start SS benefits before age 70 for whatever reason, an individual should never take them before full retirement age (“FRA,” currently age 66) unless in serious financial need, or in cases where a normal life expectancy is not anticipated.
For married couples, the higher earner should wait to age 70 to begin taking benefits. This is because they will earn that higher benefit both for their lifetime and for that of their surviving spouse. There is no further advantage to be had by waiting until after age 70 to start taking benefits.
An advantageous approach for spouses is for the younger of the couple to take spousal benefits at FRA. To make this possible, the older spouse will have to be over FRA him or herself and be receiving benefits already, or if not yet age 70, to “file and suspend” for their own benefit. This arrangement allows one member of a married couple to take spousal benefits at FRA while allowing both of their primary benefits to continue to increase until age 70.
These are the general guidelines I use in my practice, though the reality is that the rules are complex and each situation needs to be evaluated individually. These guidelines do not necessarily apply to survivor benefits for spouses or children, benefits for divorced spouses or disability, all of which are beyond the scope of this outline. Also, note that you will need to enroll in Medicare at age 65, regardless of whether you start taking SS benefits.
Original question and answer posted at NerdWallet’s Ask An Advisor
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August 31, 2013
The NY Times reports that the IRS will now formally recognize all legal marriages of same-sex couples, regardless of whether their state of residence recognizes the marriage. The Social Security Administration, as of now however, will follow the lead of the state of residence when determining whether a same-sex couple is eligible for spousal benefits.
April 4, 2013
I don’t usually read much in the WSJ that I would count as good financial advice for the typical investor. But I have to acknowledge Brett Arends for this list of “Five Really Dumb Money Moves to Avoid.”
The shorter version:
- Don’t go overboard reaching for yield in a low-yield world
- Fund your retirement before spending for private university for the kids
- Don’t own more of your employer’s stock than you have to
- Don’t take Social Security early
- Don’t buy long-term US Treasury bonds at today’s yield.
Not a bad list at all, though a sharp observer will note the conflict between item #1 and item #5. The article does a decent job fleshing out a prudent path between these two contradictory recommendations.
October 20, 2011
After two years of zero cost of living increases, the Social Security Administration will give recipients a 3.6% increase in their benefits starting January 2012.
June 3, 2011
I attended a terrific presentation on Social Security benefits – earned, spousal, survivor (and divorced spousal and survivor) – by Elaine Floyd of Horsesmouth at the FPA conference in San Francisco this week. This was the first of several similar presentations I have sat through that has presented all the many complexities of Social Security in a comprehensible manner. The focus was “when to take benefits,” a question many of my clients who are approaching, or are in, their 60s are asking. I am planning a full write-up of what I learned in my July client letter, but here are a few key points:
– Do not take benefits early. Taking benefits before what is termed “full retirement age” (FRA), is rarely, if ever, advisable. Many people ask whether they should start at age 62 and I strongly recommend against this option except in cases of extreme financial hardship. FRA is currently 66 for those born 1943 or later, rising to 67 for those born after 1959.
– Defer the higher wage earner’s benefits start until age 70 in order to maximize lifetime benefits for a couple. This is particularly advantageous when there is a younger spouse.
– Take spousal benefits at FRA. One member of a couple should take spousal benefits once they both reach full retirement age. I will outline a technique for allowing the primary benefits for both spouses to continue to increase until age 70, even after filing, in my July letter.
Floyd has made Social Security benefits the focus of her consulting work. She said in her presentation that expects a legislated “fix” to Social Security in the coming years, one that will certainly include somewhat later eligibility, and that this will allay the expected financial shortfall in the program. Gen Xers, take heart!
Martin Weil is a Certified Financial Planner™ with over thirty five years of investment experience.