New Social Security Law Change…
Many of us are reaching the age when we have to consider when we are going to collect social security. Help in making that decision can be found on the Consumer Financial Protection website. The law has recently changed regarding file and restrict and file and suspend techniques in claiming social security benefits. The following is a BRIEF discussion of those changes. For purposes of this discussion, full retirement age (“FRA”) for both Jack and Jill is age 66 and the primary insurance amount (“PIA”) to be collected at the FRA for Jill is $500 a month and for Jack is $1,200 a month.
Assume that Jill files for benefits 3 years earlier than her FRA and Jack files for benefits at his FRA.
Jill’s spousal benefit is 50% of Jack’s PIA ($1,200 x 50% = $600) less her own PIA ($500) which equals $100/month. Since she filed 3 years early, her spousal benefit of $100 is further reduced to $75/month. Jill’s own PIA is reduced to $400 because she filed 3 years early. Jill’s monthly benefit is now totals $475 ($400 + $75).
Jack would receive his PAI of $1,200 since he filed at his FRA.
Because Jill filed early (before her FRA), she is deemed to have filed for both benefits (spousal benefits and her own) and both benefits are reduced. By filing early, she gives up her opportunity to receive her maximum spousal benefit while allowing her own retirement to accrue “delayed retirement credits”.
FILE & RESTRICT (CURRENT LAW):
If Jill waits until her FRA, she can choose to apply for some but not all of her benefits – this is called “File & Restrict”.
Jill waits until her FRA and chooses to “file & restrict” to receive only her 50% spousal benefit of $600 ($1,200 x 50%). Because she is not filing to receive her own benefits, her own $500 FRA can grow at 8% (“delayed retirement credits”). At age 70, her own benefits will be $660/month. However, since her monthly amount at age 70 would be more than the 50% spousal benefit she had been receiving, she can no longer receive the spousal benefit ($660 > $600 = $0 spousal benefit).
FILE & RESTRICT (NEW LAW):
You can’t restrict what benefits are being applied for even if you file at your FRA. If you apply for 1 benefit, you are deemed to apply for ALL benefits for which you are eligible. If Jill files for either spousal or her own benefits, she is deemed to have filed for both of them. She does not get the 8% increase, her benefit is $500 + $100 = $600.
FILE & SUSPEND (CURRENT LAW):
In the discussion above, Jack had to file at his FRA for Jill to receive her spousal benefits, however, he could immediately “suspend” receipt of his own benefits. This suspension would allow his benefits to accrue delayed retirement credits and his monthly benefit of $1,200 would increase at 8% annually until he reached the age of 70 at which time he would receive an increased monthly benefit.
FILE & SUSPEND (NEW LAW):
If Jack suspends his own benefits, he also suspends Jill’s spousal benefits. However he would still receive the 8% delayed retirement credits.
ADVICE: The new file and restrict law applies to you if attain age 62 after 2015. Thus, if you are 62 before 12/31/2015, you can still file & restrict The new file and suspend law applies 180 days after enactment of Act (4/30/2016). If you qualify, do it before 4/30/2016!!
New Word of the Week: Testator/Testratix is a person making a will. The testator is the male version and the testratix is the female version. Currently the term “testator” can be used for either female or male.
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