Time is running out for a Social Security claiming option

Time is running out for a Social Security claiming option

Most investors plan to rely on Social Security as a source of retirement income and married couples have several choices of how they claim these benefits. But following last year’s federal budget decision, two claiming strategies for married couples are being phased out, with one set to expire in April.

Congress passed the Bipartisan Budget Act of 2015 and included a provision to phase-out the “restricted application” and “file and suspend” options for couples to claim Social Security. Both strategies are currently available but only for a limited time.

In fact the availability of the file and suspend strategy will expire in April. The strategy is available for retirees who reach full retirement age (66) and implement file and suspend by April 30, 2016. It can be an opportune time for advisors to reach out to couples still contemplating a claiming strategy, particularly if they will be 66 in April.

How it works

File and suspend can be effective for couples where one spouse is the primary wage earner and the other spouse has low or no earnings history. In this strategy, the primary earner waits until full retirement age to file for retirement benefits. This allows the other spouse to file and begin collecting spousal benefits.

After filing for retirement benefits the primary earner immediately suspends benefits to take advantage of the delayed retirement credit and increase benefits by 8% per year. Then, at age 70, the higher earning spouse can receive the highest possible retirement benefit for life.

This strategy also preserves the highest possible survivor benefit to help the surviving spouse.

Restricted application

Restricted application is available for those who reached 62 years of age in 2015. They can still use this strategy when they reach full retirement age (66). This strategy also involves one spouse filing for benefits while the other restricts his or her benefits to spousal benefits only while delaying retirement.

Social Security and retirement income

A 2016 survey by the Employee Benefit Research Institute indicated that 91% of workers expected that Social Security will be a major or minor source of income in retirement and 62% identified it as a major source. Strategies to optimize Social Security vary depending on an individual’s financial situation. Consulting a financial advisor or tax professional can help identify the most advantageous time and strategy for filing a claim. For more information, read Putnam’s investor education piece, “Optimizing Social Security: Five things you need to know.”


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