By Janet Kidd Stewart, Chicago Tribune (TNS)
The cuts to a couple of key Social Security claiming strategies — squeezed into federal budget legislation in October — continue to confound seniors, whether or not they’re actually affected by the changes.
“A lot of people are contacting me in a panic about what to do, but many of them are grandfathered in and have nothing to worry about,” said Michael Kitces, a financial planner and blogger who writes frequently about Social Security claiming at www.kitces.com. “Younger people will certainly be affected, but they aren’t the highest volume of questions we’ve been getting.”
Under the new rules, after a phase-out period that will grandfather in some seniors, couples will no longer be able to collect spousal benefits if they are generated from a beneficiary who has filed for and suspended his or her own benefits. And people who file and suspend their benefits will no longer have the option of reversing course and requesting a lump-sum “refund” of benefits that in essence resets their claiming date. Also ending is the ability to file a restricted application at full retirement age for just spousal or just work-based benefits, a strategy people use to collect some money immediately, while letting the other benefit grow.
Here’s how Kitces explains the changes in detail:
If you were born April 30, 1950, or earlier: You can still file for benefits at full retirement age and then suspend them in order to earn delayed retirement credits while allowing a spouse to collect benefits on your record while you delay. Individuals can file and suspend, and then if circumstances change they can go back and collect those suspended benefits, though future benefits will be based on the earlier filing date. In both situations, the suspension must be filed by April 29 of 2016.
Born between May 1, 1950, and Jan. 1, 1954: You’ll still be able to file a restricted application for benefits, meaning at full retirement age you can choose whether to take a spousal benefit or one based on your work record. But you won’t be able to let a spouse claim benefits on your suspended application.
Born Jan. 2, 1954, or later: You won’t be eligible for the file-and-suspend strategy and you won’t be able to take just a spousal benefit or just one based on your work record while letting the other grow.
One caveat worth mentioning here is that the Social Security Administration has not yet laid out specific guidance on how these measures — hammered out in the federal budget legislation in October — will be implemented. So if there is a quirk in the calendar, the dates mentioned above could be altered slightly — no small thing for people whose birthdays fall around the dates in question.
A Social Security spokesman also said divorced spousal benefits are not affected by the change in the suspension-of-benefits policy. Some observers have been calling for clarification on the changes because it potentially could result in situations where a vindictive ex-spouse would suspend benefits just to keep a former spouse from collecting. The fact that divorced spouse benefits aren’t affected then raises some interesting questions about how far a couple would want to go to retain the ability to collect. In theory, a couple could divorce just to have the opportunity to have one person collect spousal benefits while the other continues to earn delayed retirement credits.
Kitces thinks it’s highly unlikely that couples would go to this extreme for a small bump in Social Security benefits. And doing so would negate other positive incentives in the tax code for staying together, he said.
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Janet Kidd Stewart writes The Journey for the Chicago Tribune. Share your journey to or through retirement or pose a question at email@example.com.
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