In October Congress voted to phase out the “file and suspend” and “file a restricted application” strategies some people were using to maximize their Social Security benefits. It should be noted that no current benefits were cut and retirees already using either strategy may continue to do so – everything you are getting from Social Security today you will continue to get. Without getting too nitty gritty here’s what was and is now lost.
File & Suspend:
The rules say a spouse cannot collect spousal benefits until the primary earner collects, but every year the primary earner delays receiving benefit, the more they grow. Under the old rule the primary earner could file for benefits at full retirement age but then suspend collecting them. By doing this the primary earner’s future check grows at 8% a year until age 70, but the spouse can collect the spousal check immediately at age 66. The other aspect of this is if the filer-and-suspender changed their mind and wanted to undo the suspension, they were able to get a lump sum check for all the benefits that had been suspended.
Both spouses work and at full retirement age both file for benefits. However, one spouse files a restricted application where they only collect the spousal benefit check and let their own Social Security account benefit grow at 8% a year until taken by age 70.
If you are currently using either of these strategies today you get to keep using them. If the primary spouse is at least age 66 before 29 April 2016 file and suspend can be used. A restricted application can be made up until 2019 if you were born in 1953 or before.
This change has zero effect on existing benefits; no one’s check will be cut. It does affect couples that wanted to receive some benefits at retirement age, but still have the larger benefit grow until collected later. It does not affect survivor benefits.
If you have questions:
Get in touch with your local Social Security office. I’ve just hit the hot spots.
These strategies were unintentionally created when Congress passed the Senior Citizens’ Freedom to Work Act of 2000. The loophole they closed was resulting in this: You could have a couple where one spouse worked and made $80,000 a year and another couple where each worked earning $40,000 a year. Both couples paid the same amount of Social Security taxes, but by using these strategies the high earner with the nonworking spouse could collect thousands of dollars in additional benefits not available to the other couple. Getting rid of these strategies makes it all a little fairer and Social Security a little more solvent.
The older I get, one fact mystifies me; it’s in the front of my mind every year around the holidays – how fast the time has flown by! Know what I mean? And, as much as I hate to say it, how quickly my lifeline is starting to shorten. Isn’t it amazing that when we’re young, the primary issue is, “if I die.” But then that question changes to, “when I die.” Also, that word “retirement” starts to creep in. Many of you may already be in retirement, and I hope things are just wonderful for you in every aspect at this time in your life. But, if you’re like most retirees, you probably monitor and maintain your retirement finances. That’s smart; that’s a good thing to do! And that’s precisely what I want to talk about here – retirement planning and maintenance, especially for those of you who may not be doing it.
First, we all need to place part of our retirement income on “auto-pilot.” What I mean by autopilot is that each of us should designate a portion of our retirement income to cover all of our “essential“ expenses – a definite amount money that won’t change. You know, sort of like the Social Security check that’s deposited in your account every month. Just think about your frustration if your Social Security benefit was not the same each month! Or, what if your Social Security account became depleted and there wasn’t enough cash to continue to pay you for the rest of your life! And, if you’re married, just think how nervous you would be if you weren’t guaranteed of a spousal benefit payout at the death of the first spouse. That’s what I mean by “autopilot,” in this example, your essential expenses (not income).
So now my first question: Why do so many Americans continue to keep an inordinate amount of money at risk when having guarantees would make the quality of their retirement life so much better? My answer is: They aren’t doing enough planning and maintenance for retirement. They’re kind of flying blindfolded without an autopilot button to push!
My suggestion is simple: First, make a simple list of all of the essential expenses you have – or will have – at retirement, you know, rent or mortgage payments, health insurance, car payments utilities, insurance, and so forth.
Then, list all of your guaranteed income that will arrive each month, such as your pension amount and Social Security benefits. Now, simply subtract the total amount of your guaranteed income from your essential expenses. If you see a shortfall – not enough guaranteed income to offset your expenses – then you should use a guaranteed financial income product to fill that gap. Pretty simple, right?
At this point you can make decisions on the discretionary income you to have, such as vacations, a second home, college tuition for your grandkids, and still keep that emergency pot of money available for those unexpected expenses, like a new furnace, a new roof, medical equipment, and so on. You’ll have identified your “essential expenses,” your “guaranteed income,” and your discretionary income amount” that you’ll have for the rest of your life.
Your final step will be to determine if you want additional guaranteed money on autopilot. You see, as we get older, the size of the pot of money we accumulate is not as important as our guaranteed income cash flow. Facts are, as we get older, we just don’t have as much time to recover from an economic turndown or stock market meltdown. What matters most is how you plan for retirement and how you maintain that plan over the long haul.
So, this season, after your holiday parties are over, after you develop the holiday photos (or upload them onto Facebook), and after you reflect on all of your good fortune this past year, maybe that’s a good time to do some yearly maintenance work on your retirement portfolio and place a little more of your retirement income on autopilot.
From all of us at The Ohlson Group, please have a wonderful Holiday Season and the healthiest of New Years!
This article was written by:
Raymond J. Ohlson , CLU, CRC, LACP
President and CEO of SMP International LLC
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