Social Security Filing Frustrations

There is a tremendous amount of confusion about recent changes that affect how you can claim your Social Security benefit -- confusion on the part of the public as well as, apparently, some Social Security personnel.

For instance, Patrice, a co-work of mine, told me that on a visit to her local Social Security office, she asked about how the changes would affect her and was told, “We only know as much as you do. We’re just reading about it in the newspaper.”

Much of the problem stems from the fact that the section of the Bi-Partisan Budget Act which mandated these changes was, itself, unclear. Social Security personnel spent roughly two months working with Congressional staffers in an attempt to clarify what Congress “intended” when it wrote this legislation. As a result, there was a delay in getting guidance to Social Security field offices about how to apply the new rules. The first “emergency directives” were not issued until early February.

In other words, if my friend, Patrice, visited her Social Security office before these came out, it’s understandable that the representative she met with could not help her.

Adding stress to the situation is the fact that there is a very short deadline associated with one of the disappearing claiming strategies: April 29th. Members of the public have expressed frustration because they aren’t sure how or if they are affected by the new deadline and are not confident that Social Security personnel are giving them accurate advice.

Here are the basics:

File-and-Suspend

Advantage:  This allows Spouse A to receive a benefit based upon Spouse B’s work record even though Spouse B is not personally receiving any checks from Social Security. While Spouse B’s benefit is suspended, it earns Delayed Retirement Credits (DRCs) which increase Spouse B’s benefit by 8% every 12 months up until age 70.

Requirements: In order to request that your benefit be “suspended” you have to be at least Full Retirement Age -- currently 66.

What’s Changing: You will still be able to suspend your benefit at Full Retirement Age. However, if you do so on or after April 30th, any individual who is receiving a benefit based upon your record will also see their checks stop. This includes a spouse, child, dependent parent, etc.

Bottom Line: If you will not be at least age 66 by April 29th this strategy is not an option. After that date it is not possible to allow your spouse to receive a benefit on your record while your own benefit is suspended.

According to Social Security spokesperson Dorothy Clark, it is not necessary for both  spouses to file before April 30th – just the one who wants to “suspend.”  The other spouse can wait. In fact, if they wait until FRA to file, they will receive the maximum spousal benefit available.

File-and-Restrict

Advantage: This allows Spouse X to delay the start of their own benefit so that it can increase thanks to Delayed Retirement Credits. However, instead of receiving nothing during this period, Spouse X requests that Social Security pay them their 50% spousal amount based upon the benefit that Spouse Y has earned. Spouse X receives this until age 70 and then switches from their spousal to their own (now larger) retirement benefit.

Requirements: In order to “restrict” your benefit to just your spousal amount, you must be at least Full Retirement Age at the time you file. And your spouse must have filed for their own benefit.

What’s Changed: If you were not at least age 62 by January 1, 2016 you cannot use this strategy. It is being phased out over four years. Thus, if you turned 62 last year, you have to wait until you reach age 66 (your Full Retirement Age) in order to file for a “restricted” benefit.

Bottom Line: If you were not at least age 62 or older as of January 1st, this is no longer an option.  If that’s case, no matter what age you file -- from 62 to 70 -- Social Security will pay you the highest benefit you are entitled to.

The Claiming Combo

Couples who retain the most flexibility are those where both partners meet the deadline for turning age 62 by January 1, 2016.

For instance, says Clark. “John is 66 in March of 2016. Susie is going to be Full Retirement Age in May. Therefore she was 62 or higher prior to January 2nd, 2016. She will not be affected by the new rules [about restricting your benefit].”

As long as John files and suspends before the April 30th deadline, when she turns FRA in May Susie can file for a “restricted” benefit of just her 50% spousal amount. By delaying the start of her own benefit, it will be at least 32% larger when she switches to that at age 70.

Don’t Agree With the Advice You Get?

Frankly, discussing Social Security options can be like playing a game of “Post Office.” (If you are too young to know what I’m talking about, this column is completely irrelevant!) This is a complex and confusing topic. And, it doesn’t help that Social Security seems to have a language all its own at times. For instance, did you know that there is a difference between being “eligible” for a benefit and being “entitled” to a benefit?

If you don’t agree with something that you are told when you file for benefits, you need to keep asking questions. For instance, if a Social Security representative says File-and-Restrict is not an option for you and your spouse, make sure you understand why.

If you still disagree, get a second opinion. Clark’s advice: “If you feel a Social Security representative has not given you accurate information, ask to speak to a supervisor.”

The wrong filing decision can cost you tens of thousands of dollars in lost income over the decades you will spend in retirement. Be sure you get this right.