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A special note of thanks goes out to Luke Delorme of the American Institute for Economic Research (www.aier.org), William Reichenstein of Social Security Solutions (www.socialsecurity solutions.com) and Judith Ward of T. Rowe Price (www.troweprice.com) for answering detailed questions about the rule changes and claiming strategies, as well as providing feedback on and suggested edits for this article.

Included in the Bipartisan Budget Act of 2015 are provisions phasing out two Social Security claiming strategies.

Beginning in May 2016, married couples will no longer be able to file for and then suspend receiving benefits for the purpose of making their spouses eligible to take spousal benefits, and singles will no longer be able to file and suspend to have the flexibility of retroactively claiming benefits. Applications to restrict the claiming of benefits to just spousal benefits are limited to those who were at least age 62 as of the January 1, 2016. The ability to use restricted filings will be completely phased out in 2023 when the last of those eligible to use restricted filings turn age 70.

The changes simplify the decision process for claiming retirement benefits by removing two options. At the same time, the changes highlight the importance of calculating the various expected lifetime income streams from claiming at various ages. Often, the later in life that benefits are taken, the higher the lifetime income stream will be. The downside of postponing the date when benefits begin is the risk of not living long enough to pass the breakeven date. The breakeven date is the month when the cumulative benefits from delaying the claiming date matches the cumulative amount that would have been received by having claimed earlier.

The trade-off means that both individuals and couples should consider their expected longevity as well as the risk of dying sooner or later than expected. The challenge of deciding whether to claim earlier or later also highlights the role of Social Security as a retirement income annuity that provides a hedge against a longer-than-expected life span.

Benefits Are Impacted by the Claiming Date

Social Security is a stream of income paid monthly to those who qualify. An individual’s Social Security retirement benefit is based on their primary insurance amount (PIA). The PIA is based on the highest 35 years of earnings (limits on maximum income for any one year exist and earnings before age 60 will be indexed.) In addition, married individuals may be eligible for benefits based on their spouse’s record. Reduced monthly benefits can start as soon as age 62. Full benefits can be claimed at full retirement age (FRA). Full retirement age is 66 for those born between 1943 and 1954, increasing up to age 67 for those born in 1960 or later. Benefits can further be increased by delaying them up to age 70.

As explained in “Social Security Basics” (William Reichenstein and William Meyer, October 2013 AAII Journal), the reduction in benefits from claiming prior to full retirement age is 5/9% per month for the first 36 months plus 5/12% per month for months 37 through 48 for someone with a full retirement age of 66. If benefits are delayed until after full retirement age, the increase is 2/3% per month for each month benefits are delayed until age 70. This means a person with a full retirement age of 66 will incur a 25% reduction in benefits by claiming at age 62 and a 32% premium by waiting until age 70.

Put another way, assume a person will receive $1,000 in retirement benefits (PIA) at a full retirement age of 66. If this person claims early at age 62, the PIA will be reduced to $750. If the same person waits until age 70 to claim benefits, the PIA will be $1,320—76% higher. This difference in monthly benefits will continue until a person dies (or the person’s spouse dies, if the surviving spouse has a lower monthly benefit, based on their own earnings record.)

This is why, even with the changes, Luke Delorme, a research fellow with the American Institute for Economic Research (AIER), says “Delaying Social Security benefits until age 70 in order to receive delayed retirement credits is still one of the best deals around.”

Also, see the box “The Advantage of Delaying” below, written by William Reichenstein of Social Security Solutions: It illustrates how the choice of when to claim impacts the expected lifetime benefits. It shows the difference in total benefits that a hypothetical couple—Tom and Nancy (who is four years younger than Tom)—would receive if Tom claimed at age 70 instead of age 66.

The Advantage of Delaying

Suppose Tom’ s PIA is $2,000, his full retirement age is 66, and life expectancy is low at 75. Nancy, his wife, is four years younger, and she has a life expectancy of 90. Nancy has a lower PIA of $700. After Tom’ death, Nancy will continue receiving Tom’s benefits, while benefits based on her earnings record will cease.

Consider two strategies: Tom begins his benefits at full retirement age or delays his benefits until age 70. Based on their life expectancies, if Tom begins his benefits at full retirement age of $2,000 per month, then they would receive $672,000 in total benefits based on Tom’s earnings record ($2,000 per month x 12 months x 28 years from when Tom turns 66 until Nancy’s death when Tom would have been 94). Alternatively, if Tom delays his retirement benefits until 70, then they would receive $2,640 per month, where the $640 in additional monthly benefits reflect four years of delayed retirement credits. Their total benefits based on Tom’s record would be $760,320, ($2,640 per month x 12 months x 24 years from when Tom turns 70 until Nancy’s death when Tom would have been 94). By delaying benefits until age 70, their expected lifetime benefits would be $88,320 higher.

The lesson is that the higher earner should base his or her starting date on the age he or she would be when the second spouse is expected to die. Even though Tom has a short life expectancy, it pays for him to delay his benefits until 70 because benefits based on his record will last until the second spouse dies.

(These numbers do not reflect cost-of-living adjustments, but they do reflect the lifetime purchasing power of the benefits and are fair comparisons. If inflation is, say, 1% each year then actual benefits would increase 1% each year, but so would prices. So, their purchasing power in terms of today’s dollars would remain the same. Due to today’s low interest rates, the non-COLA adjusted numbers are also the approximate present values.)

—William Reichenstein, Social Security Solutions

Longevity Risk and Breakeven Ages

Social Security benefits are paid monthly until death. As such, the payment of benefits is akin to an inflation-adjusted annuity. A stream of cash flow is guaranteed and will be increased in the future in accordance with estimated inflation (via cost-of-living adjustments). Longevity risk is borne by the government and not the retiree.

Annuities are priced, in part, based on actuarial tables. The underwriters attempt to estimate the length of time payments will be made to help determine how much should be charged for the contract.

Social Security benefits, from the standpoint of claiming, are similar. The longer a person lives, the longer the period of time Social Security benefits will be paid. Thus, the monthly benefit increases the longer benefits are delayed, because the payments will have to be paid out over a projected shorter period of time. As such, Social Security is considered to be approximately actuarially fair: Assuming a single individual lives an average life span, cumulative benefits are about the same regardless of the claiming date. This fact brings about two potential considerations when claiming benefits. The first is the odds of having a shorter- or longer-than-average life expectancy. Married couples need to consider the potential longevity of both spouses. The second applies to couples: Benefits can be thought as a first-to-die and second-to-die annuity if there is a survivor benefit.

Survivor benefits are paid to the spouse with the lower earnings record (“Low”) if Low’s PIA is less than that of the spouse with the higher earnings record (“High”) and Low outlives High. To keep things simple, assume both spouses are the same age and file at the same time and Low’s PIA is less than half of High’s. If Low lives longer than High, it is in the best interest of High to postpone claiming as long as possible to maximize the survivor benefit income stream that Low will receive after High dies. If Low should die first, High still receives the largest monthly benefit based on his or her earnings record by delaying benefits. The survivor benefit is the higher PIA of the two spouses.

Longevity comes into play when the breakeven age is calculated. The breakeven age is the age at which the cumulative benefits from delaying benefits matches the cumulative benefits that would have been received had Social Security benefits been claimed earlier.

Reichenstein gives an example of a same-aged, one-earner couple with a life expectancy of age 85 for High and age 91 for Low. They have reached full retirement age of 67. If High begins benefits at 67, then Low can begin spousal benefits at that time. If High delays benefits until 70, then Low would not be able to begin spousal benefits until that time. If High were to start benefits at age 70 instead of age 67, one spouse (Low in this example) would have to live to beyond 88 years and nine months to realize the higher lifetime income from doing so under the revised claiming rules. Assuming a monthly PIA of $2,600 for High, this difference equates to approximately $7,500 extra every year that Low lives past the breakeven point. In other words, if Low were to live five additional years past age 88 and 10 months, approximately $37,500 more in Social Security benefits would be received if High delays claiming benefits until 70. See Reichenstein’s box “Claiming at 67 or 70 for a One-Earner Couple” below for more details on this. (Cost-of-living adjustments are excluded from the example.)

Claiming at 67 or 70 for a One-Earner Couple

The data below shows the difference in annual and lifetime benefits for a one-earner couple. Both spouses were born on January 2, 1960 and have full retirement age of 67. The working spouse (High) has a PIA of $2,600. The non-working spouse (Low) only qualifies for the spousal benefit. The strategies assume High claims at his full retirement age of 67 or delays until age 70. The life expectancies are 85 for High and 91 for Low.

	Claim at Age 67		Claim at Age 70		Difference Between Claiming at 67 and 70
Age	$2,600 PIA	Spouse	$2,600 PIA	Spouse	Difference Between Claiming at 67 and 70
67	$2,600	$1,300			$46,800
68	$2,600	$1,300			$93,600
69	$2,600	$1,300			$140,400
70	$2,600	$1,300	$3,224	$1,300	$132,912
71	$2,600	$1,300	$3,224	$1,300	$125,424
72	$2,600	$1,300	$3,224	$1,300	$117,936
73	$2,600	$1,300	$3,224	$1,300	$110,448
74	$2,600	$1,300	$3,224	$1,300	$102,960
75	$2,600	$1,300	$3,224	$1,300	$95,472
76	$2,600	$1,300	$3,224	$1,300	$87,984
77	$2,600	$1,300	$3,224	$1,300	$80,496
78	$2,600	$1,300	$3,224	$1,300	$73,008
79	$2,600	$1,300	$3,224	$1,300	$65,520
80	$2,600	$1,300	$3,224	$1,300	$58,032
81	$2,600	$1,300	$3,224	$1,300	$50,544
82	$2,600	$1,300	$3,224	$1,300	$43,056
83	$2,600	$1,300	$3,224	$1,300	$35,568
84	$2,600	$1,300	$3,224	$1,300	$28,080
85	$2,600		$3,224		$20,592
86	$2,600		$3,224		$13,104
87	$2,600		$3,224		$5,616
88	$2,600		$3,224		-$1,872
89	$2,600		$3,224		-$9,360
90	$2,600		$3,224		-$16,848
Before the changes, the breakeven age was 82.5. After the recent changes, the breakeven age is almost 88 years and 9 months. If there is an expectancy of one spouse living beyond this age, High should delay claiming until age 70. Source: William Reichenstein, Social Security Solutions.

The risk, of course, is that neither High nor Low make it to or live past this breakeven age. If both spouses have shorter life-span expectancies, then it can make sense to claim benefits sooner rather than later. Health and genetics (e.g., how long one’s parents lived) need to be taken into account when claiming. At the same time, realize that longevity is considered to be a “right-tail” risk in the world of finance: The longer one lives, the more money they will need. This why economists like annuity contracts—they transfer longevity risk from the individual to a third party.

(One big difference between Social Security and commercial annuities is that the government is not contractually obligated to pay benefits. Congress has the legislative ability to change benefits, alter the amount of Social Security benefits eligible for taxation, raise the ages at which benefits can be claimed and alter the amount of income subject to the FICA tax, which funds Social Security. The political willpower to do any of these things is a different issue and beyond the scope of this article. As far as the risk of insolvency is concerned, the Social Security and Medicare Boards of Trustees predicts benefits would be reduced by 25% starting in 2034 if nothing is done to shore up Social Security reserves before then.)

The New Claiming Rules

The 2015 budget bill took away two options that could be used for claiming Social Security: “file and suspend” and restricted applications. Both had allowed for more flexibility and a greater margin of error when filing.

Starting in May 2016, the file-and-suspend claiming strategy for spousal benefits will be disallowed. This strategy allowed a person to file a claim for benefits and then immediately suspend it, while still leaving spousal benefits and retroactive benefits available as options. For example, the High spouse could file for benefits at age 66 and then postpone taking benefits until age 70. This allowed High to maximize the PIA, while making Low eligible to claim spousal benefits. See the box “File and Suspend: Before and After the Change” also by Reichenstein below for an example.

File and Suspend: Before and After the Change

The following example illustrates how the file-and-suspend strategy was used and how it will be changed.

Lynn has a primary insurance amount of $2,000 and turned 66 in August 2015. Al, her husband, will turn full retirement age of 66 in August 2016, and has a PIA of $1,600. Prior to the recent rule changes, Lynn was going to file and suspend her benefits when Al turned 66 in August 2016. She would then begin her own benefits at 70 of $2,640, which reflects four years of delayed retirement credits. Since Lynn filed for her benefits (even though she suspended them), Al could have filed a restricted application for spousal benefits of $800, half of her PIA, beginning August 2016. Four years later when Al turned 70, he planned to switch to his own benefits of $2,112, which reflects four years of delayed retirement credits.

The new rules do not allow Lynn to file and suspend benefits beyond April 29, 2016. Thus, if she does not file and suspend her benefits until August 2016, as originally planned, then Al would not be eligible for spousal benefits until Lynn actually begins her benefits at age 70, when Al turns 69. She must file for her benefits for Al to be eligible for spousal benefits. Thus, Al would lose three years of spousal benefits from age 66 through 68.

In this case, Lynn should file and suspend her benefits by April 29, 2016. She would still receive $2,640 per month in benefits at 70. However, this would allow Al to make a restricted application for spousal benefits at his full retirement age of 66. To repeat, if Lynn fails to file and suspend by April 29, 2016, then Al cannot begin spousal benefits until she actually starts her benefits. To change the example slightly, if Lynn attains 66 in March 2016 then she can file and suspend any time from March through April 29, 2016. But she will not be able to file and suspend after that date.

—William Reichenstein, Social Security Solutions.

Restricted applications allow a married person to file for spousal benefits only at full retirement age if their spouse has already filed (e.g., a working wife could file for only spousal benefits when she turns 66 if her husband has already filed for benefits based on his own earnings record). Restricted applications allowed a person to begin receiving spousal benefits, while postponing the date at which they claimed on their own earnings record.

The Bipartisan Budget Act of 2015 contained language requiring spouses take the highest benefit they are eligible for. The law reads, “If an individual is eligible for a wife’s or husband’s insurance benefit…in any month for which the individual is entitled to an old-age insurance benefit, such individual shall be deemed to have filed an application for a wife’s or husband’s insurance benefits for such month.” In other words, a spouse cannot receive spousal benefits while delaying claiming on his or her own earnings record until age 70 if his or her PIA is equal to or greater than one half of the other spouse’s PIA. Using a hypothetical same-age couple named Bob and Mary, if Mary’s PIA is $1,500 and Bob’s is $2,000, Mary would be ineligible to claim the lower spousal benefit (one half of Bob’s, or $1,000) at full retirement age while postponing benefits based on her own earnings record.

The rules still allow someone to suspend benefits at full retirement age or later and earn delayed retirement credits when benefits are unsuspended, such as at age 70. At the same time, the law prevents individuals from claiming benefits on their spouses’ earnings record if the other spouse is not currently receiving benefits. The law states: “In the case of an individual who requests that such benefits be suspended under this subsection, for any month during the period in which the suspension is in effect…no monthly benefit shall be payable to any other individual on the basis of such individual’s wages and self-employment income; and…no monthly benefit shall be payable to such individual on the basis of another individual’s wages and self-employment income.”

In other words, once a person files for Social Security, the maximum benefits will be paid based on what he or she is eligible for. Spousal benefits will be paid if High is already receiving benefits and Low (whose PIA is less than one half of High’s) files. If neither spouse has filed, benefits will be paid on the individual’s earnings record. A married person is “deemed” as having filed for both individual and spousal benefits if the other spouse has already filed. Going back to Bob and Mary, Mary is deemed as filing based on her earnings record because her PIA is greater than the spousal benefit. If Mary’s PIA was $700 instead, she would be deemed as filing for the spousal benefit and would receive a benefit of $1,000. [Technically, if Mary files at full retirement age, the Social Security Administration gives her her own PIA of $700 plus spousal benefits of $300 ($1000 – $700), for a total of $1,000.] See Reichenstein’s box “The Impact of Suspending Benefits” below for another example.

The Impact of Suspending Benefits

Consider a same-age couple (Joe and Jan) who were born on January 2, 1954, or later and have one child. Joe has a PIA of $2,000 and Jan’s is $700. Their full retirement ages are 67.

Joe begins benefits at 62 of $1,400 per month, which makes Jan eligible for her own plus spousal benefits and makes their child eligible for a child’s benefit. Jan’s own benefits would be $490, [70% of $700], and her spousal benefits would be $195, [0.65 x ($1,000 – $700)], for total monthly benefit of $685, where 70% and 65% are the self benefit fraction and spousal benefit fractions for someone age 67 beginning benefits at 62, and $1,000 is half of Joe’s PIA.

At full retirement age, Joe suspends his benefits and restarts them at age 70. During the suspension period, Jan would not be eligible for spousal benefits because they are based on Joe’s earnings record, but she could continue her own benefits of $490. Their child would not be eligible for child’s benefits based on Joe’s earnings record. In addition, Joe would not be eligible to file a special application for spousal benefits based on Jan’s PIA because he was born on January 2, 1954, or later. When Joe restarts his benefits at 70, he would receive $1,736, ($1,400 x 1.24, where 1.24 reflects three years of delayed retirement credits).

—William Reichenstein, Social Security Solutions

Determining When to Claim

The changes simplify the claiming decision by removing two options. The new rules make determining when to take benefits largely a claim now or claim later decision for married couples. (It has generally been this way for singles.) Even so, the decision of when to claim remains a complex one. Assuming a person or a couple is able to voluntarily choose when to retire, forethought and the willingness to calculate cumulative differences in claiming at one age versus another is required.

Single individuals have the easiest decision. Divorced persons ineligible to claim benefits based on an ex-spouse’s earnings record should delay claiming as long as possible given their health and expected longevity. Those who have a reasonable expectation of not living past 80 can claim earlier, though delaying results in higher lifetime benefits at age 80 and beyond versus claiming earlier. Waiting until age 70 to claim ensures higher lifetime benefits for those who live into their 90s or longer.

Married couples face a bigger challenge because two benefit amounts are in play: that of the high earner and that of the low earner. The reason is not only the survivor benefit, but also the spousal benefit. The lower-earning spouse is able to receive benefits based on the higher-earning spouse’s record if Low is at least 62 years of age. (Special rules apply if a child who is under the age of 16 or disabled is being cared for. See the Social Security’s website at www.ssa.gov for more information.)

If both spouses have enough work history to qualify for Social Security benefits, Low has the flexibility of claiming early while High delays. Doing so may make sense even if Low’s PIA is less than half of High’s PIA. Judith Ward of T. Rowe Price explains, “If a lower-earning spouse can file on their own work history, the other spouse can delay for as long as possible, since they are the higher earner. This maximizes the survivor benefit. Then when the higher earner files for their own benefit, the spouse who had been receiving the smaller benefit may get a bump up in monthly income if the spousal benefit (half of High’s PIA at full retirement age) is higher than their own.”

The New Social Security Rules

The Bipartisan Budget Act of 2015 eliminated two options for claiming Social Security benefits. The act did, however, include two windows for certain individuals and couples to take advantage of the older rules. In doing so, the law segmented people into one of three age groups:

Group 1: Those born on April 30, 1950, or earlier and, thus, who will attain full retirement age FRA by April 29, 2016;
Group 2: Those born between May 1, 1950, and January 1, 1954, who attained age 62 by the end of 2015 (Social Security considers someone to attain an age one calendar day prior to that person’s actual birthday);
Group 3: Those born on January 2, 1954, or later and, therefore, who did not attain age 62 by the end of 2015.

Here’s a summary of how the rules apply to each of the three age groups:

The file-and-suspend strategy is available to those in Group 1 as long as benefits are filed for and suspended by April 29, 2016. (Given the uncertainty of the deadline at press time, the deadline should be assumed as actually being April 29, 2016, unless the Social Security Administration states otherwise.)
Restricted applications can be filed and used by those in Group 1 and Group 2 if the spouse has already filed for his or her own benefits. To file a restricted application, a person must have attained their full retirement age of 66.
Those in Group 3 cannot file for one type of benefit at full retirement age and then switch to another benefit at a later date. Rather, they are “deemed” to be applying for their own benefits plus, if eligible, a spousal benefit whenever benefits are applied for.

Source: “Social Security Claiming Strategies After the Recent 2015 Changes,” Social Security Solutions.

She added, “In single-earner households there is less incentive for even the higher earner to delay because the non-working spouse depends on that income as well.” The timing of when income is needed is key because once High files, Low will receive benefits on High’s earnings record. Unlike the old rules, effective May 2016 High can no longer file for benefits and then suspend them in order to allow Low to start receiving benefits. In a couple with one non-working spouse, Low will only receive benefits when High does. (Those who file and suspend before the May 1, 2016, deadline can take advantage of the older rules.)

As long as the spousal benefit is a consideration, the numbers on the breakeven age must be calculated. For a same-aged couple with PIAs of $2,600 and $600, the breakeven age for High postponing until age 70 instead of claiming at age 67 is almost 85 years and 10 months, assuming High lives to age 85 and Low lives to age 91. If Low has a shorter life span, then claiming earlier is more beneficial. If Low has a longer life span, then Low is penalized by High’s decision not to wait until age 70. These scenarios are based on numbers calculated by Reichenstein.

A big loss for married couples is the flexibility that the file-and-suspend strategy provided. File and suspend gave couples the upside of receiving income sooner and a bigger survivor benefit. Now, couples must weigh the need for income sooner against the potential longevity of the longer-living spouse. Depending on the age differences between spouses, their individual PIAs and anticipated longevity, the optimal age(s) for claiming will vary. There is simply no substitute for running the numbers based on various claiming dates to determine what claiming strategy is best for a specific couple.

There are some general guidelines, however. The rule of thumb to delay the claiming date up to age 70 still holds, but with some exceptions. Delaying maximizes the survivor benefit for married couples. If Low is younger, then it is often better for High to file when Low’s full retirement age is reached as opposed to delaying until age 70. This will give Low the full spousal benefit and often gives the couple greater income. (This will not be an option if the age difference is greater than eight years. In such a situation, it usually makes sense for High to delay to age 70, which would maximize Low’s survivor benefit.) If Low’s PIA is greater than 50% of High’s but still less than High’s, then it can make more sense for both spouses to delay until age 70 (or at least for High to) since the spousal benefit is no longer an option, but the survivor’s benefit is. If both High and Low do not expect to live much past the age required to realize the higher income of delaying, then it can make sense to claim benefits earlier.

Again, the key is to run the numbers based on various claiming dates to determine what strategy makes the most sense. PIAs, longevity expectations and ages all will influence the outcome. The more likely it is for the surviving spouse to pass the breakeven age, the more it makes sense to delay filing. When in doubt, it may make more sense to assume a longer life span than a shorter one.

Limited Opportunity for File and Suspend and Restricted Applications

At the time of publication, there is still time to take advantage of file and suspend and restricted applications for those meeting specific age requirements. Individuals and couples who attain at least age 66 as of the end of April 2016 can file applications for Social Security benefits and immediately suspend them. Married individuals who were born prior to January 2, 1954, can file restricted applications until they turn 70.

The ability to file and suspend ends 180 days after the enactment of the Bipartisan Budget Act of 2015. The exact deadline is uncertain because May 1, 2016, is on a Sunday. As of the date this article was sent to the printer, the Social Security Administration had yet to announce whether or not it would extend the deadline to Monday, May 2, given the weekend deadline. The law itself does not list a precise deadline either. Rather it says, “The amendments made by this subsection shall apply with respect to requests for benefit suspension submitted beginning at least 180 days after the date of the enactment of this Act.”

Given this, it is prudent to treat the deadline as being April 29, 2016, until an actual deadline is announced. If at all possible, file and suspend before that date or at least set up an appointment to meet with the local Social Security office to file before that date. You want to avoid any potential difficulties due to a large number of individuals and couples filing in the days leading up to the deadline.

Filing and suspending benefits provides flexibility in claiming benefits. For example, consider a hypothetical couple, Mike and Mary. If Mike files and suspends at his full retirement age (FRA) of 66, Mary can claim spousal benefits when she reaches her full retirement age based on Mike’s earning record. In the meantime, Mike can wait until age 70 to take his benefits, which will increase due delayed retirement credits. In order to file and suspend, a person must have attained age 66 by the May 1, 2016, deadline.

Restricted applications are another useful tool. If Mike files or files and suspends, and Mary was born prior to January 2, 1954, she could file a restricted application for just spousal benefits at full retirement age. This would give the couple income now, while giving Mary four years to postpone taking benefits based on her own earnings record. This strategy increases the couple’s lifetime earnings stream.

The deadline for file and suspend is key because if Mike suspends taking his benefits in June 2016 instead of April, Mary’s spousal benefit will stop being paid until Mike reinstates his benefit. Under new law, benefits are only payable on a spouse’s earnings record if benefits are being paid to the primary spouse. It will still be possible to suspend benefits after May 1, 2016, thus earning delayed retirement credits, but all benefits based on the person’s earnings record will stop being paid.

Those born on January 2, 1954, or later can still use restricted applications to create a similar strategy, however. If both spouses have earnings records and one spouse files for benefits based on their own earnings record, the other spouse, if at least full retirement age, can restrict their application to only spousal benefits. This allows the second spouse to delay claiming on their own earnings record until they reach full retirement age or older. At age 70, the benefit paid to the second spouse will be the higher of spousal benefit or PIA, adjusted upward to reflect delayed retirement credits.

Those (both married and single) born on or before April, 30, 1950, should file and suspend before the deadline even if they intend to begin taking benefits sooner rather than later. Given the forthcoming changes, filing and suspending now gives the greatest amount of flexibility in determining what the best claiming strategy is. Married individuals born between May 1, 1950, and January 1, 1954, who “attained” at least age 62 by the end of 2015, will attain an age no older than 65 as of the start of May and are not married to a spouse who will have attained age 66 by the May 1 deadline will only be able to take advantage of a restricted application.

Social Security: Delay Benefits at the Expense of Personal Savings?

Financial Planning

Discussion

Art from MI posted over 10 years ago:

I view social security as a two part benefit. One is the retirement payments; the second is an insurance policy if I, or my spouse, live considerably longer than expected. For the second, increasing the benefit(s) makes sense. What I would like to see is a discussion of who or what can lay claim to retirement funds (IRA's, etc) and Social Security benefits. I've heard both IRA's and social security have some protection from creditors and other vultures.

JS from VA posted over 10 years ago:

Is the information for restricted applications for those born on Jan 2, 1954 or later actually correct?

S G from PA posted over 10 years ago:

How does this new law affect a widow who began collecting at age 61 on spouse's record? At that time I received the ss award letter saying that the widow's benefit was the only one I was entitled to at that time. My intention when I filed was to delay taking my own ss benefits until age 70. I will be 66 in April of 2106. SS award letter stated that I should make an appointment 3 months prior to my 66th birthday to see if I am eligible for benefits on my own record. Can they "automatically" switch me to my own benefit at at 66? What do I need to do to preserve my option to collect later than age 66? Thank you.

Pat S from KY posted over 10 years ago:

Please clarify the "Restricted Application" for married couples born in the 1950 to 1954 window. Especially, in regards to those of about the same age with High and Low earnings records and benefits. Say born in 1951. High must take benefits for Low to claim spousal benefits? So, High cannot delay to obtain a higher benefit? My interpretation is that Low should take benefits at full retirement and High delay to 70, if Low has a longer life expectancy. Is that the right or wrong analysis?

Charles Rotblut from IL posted over 10 years ago:

JS - Restricted applications are being grandfathered in for those at least age 62 at the start of this year. Pat - Restricted applications allow a married person to file for spousal benefits only at full retirement age if their spouse has already filed. File & suspend is only available to those born on April 30, 1950, or earlier until the end of April. -Charles

Mark Gaines from CA posted over 10 years ago:

Every article I read on SS Claiming Strategies recognizes the time value of waiting to claim SS but never seems to recognize the time value of the lost revenue. By delaying a SS claim, other savings are used for living expenses that could have remained invested if SS was paying living expenses. If you include a modest 3% return on investment, the break-even age would be pushed out even further, likely beyond 90 years, which is unlikely to be reached by most individuals or couples.

C Arnold from TX posted over 10 years ago:

I agree with Mark. While the articles provide lots of good information (and thank you for them), I too am frustrated by their not addressing the time value of money. Companies typically use a certain discount rate to calculate the Net Present Value of future income streams and compare this result for alternative investments in order to choose the best. The discount rates they use are often much higher. But a modest 3-4% discount rate assumed for an individual does appear to push out the break even point to 90 or more.

C Arnold from TX posted over 10 years ago:

I agree with Mark. While the articles provide lots of good information (and thank you for them), I too am frustrated by their not addressing the time value of money. Companies typically use a certain discount rate to calculate the Net Present Value of future income streams and compare this result for alternative investments in order to choose the best. The discount rates they use are often much higher. But a modest 3-4% discount rate assumed for an individual does appear to push out the break even point to 90 or more.

Peter Yogman from UT posted over 10 years ago:

Part of this does not seem correct. The article states that a spouse A at full retirement age cannot receive spousal benefits from partner B who is claiming benefits if A's benefits, if claimed, would be more than one half of B's benefits. The language of the bill does not seem to say this and the fairly sophisticated program I run seems to allow this strategy and it is a good one. For example a couple is A 66 and B 62 with similar PIA. My program says B should take at 62 and A should take spousal until 70 then switch to their own benefit. This strategy is within a few 10's of thousands of dollars as the wait till 70 strategy but the benefits come much earlier.

Charles Rotblut from IL posted over 10 years ago:

Peter, The new law phases out restricted applications. As such, a person is deemed to be filing for the highest benefit available to them if they are not old enough to be grandfathered in. -Charles

John R from TX posted over 10 years ago:

My wife and I have approximately the same PIA. I have not made any claim for benefits. She claimed benefits four years ago. I am 66 she is 70. My PIA would be more than a restricted claim by me for a 50% spousal benefit based on her record. Can I not claim a spousal benefit and delay my own claim until I reach 70? She is currently receiving benefits (did not suspend). We are in the "grandfathered" age group. Or am I precluded simply because our earnings records were very similar and so are our PIAs? I wanted to let my benefit increase.

Charles Rotblut from IL posted over 10 years ago:

John, Since you are being grandfathered in, my understanding of the rules is that you won't be deemed as filing for the highest available benefit and will be to simply file a restricted application. You may want to double-check with the Social Security Administration to be sure. -Charles

J Morlock from NJ posted over 10 years ago:

This article and the subject it is written about is very complex. It is easy for a couple to overlook a strategy that may be the most advantageous to them. The complexity of social security rules lends itself to an automated analysis and decision making tool. Even Certified Financial Planners struggle with the complexity of the rules. $40.0 - $50.00 to access one of the websites such as www.socialsecuritysolutions.com or www.maximizemysocialsecurity.com is money well spent. Most of don't know when we will die, so there is no way to determine the best strategy ahead of time. The best we can do is understand the value of deferring benefits (longevity insurance and inflation protection) and weigh them against benefits of taking them early.

John from Georgia posted over 10 years ago:

The wild card, of course, is who will be the next president and what will he/she do to retroactively change the rules of the game in the name of "entitlement reform". If it's a Christie, many of us will receive no SS benefit at all. The other candidates have been a bit vague on what they will do, but they will make policy changes and we won't know how they will affect us for another year or so. I elected to file and suspend three years ago. I just hope that will be proven to have been a smart decision in light of the new political environment with the next pres.

Bill from Texas posted over 10 years ago:

In the table comparing the benefits at age 67 and 70, why is the spousal benefit the same? I thought that the spousal benefit was always 50% of the greater amount.

Pat from GA posted over 10 years ago:

If I understand this correctly, one take-away is that you should apply for file and suspend if you can before the deadline and sort it out later. Are there any downsides?

Charlie from Fl posted over 10 years ago:

As has been stated by men far wiser than I, this is nothing short of a Ponzi scheme and the general population would go to prison for a very long time if it engaged in promoting such. I sincerely hope that all of you are sitting down with your children and coming up with a plan for them that does not involve our corrupt government if such a thing is possible and I hope that AAII will endeavor to do the same.

HR from Tennessee posted over 10 years ago:

Like Bill from TX above it would seem that the spousal benefit at age 70 should be $1612 (50%). Also, a) does the indexing of income prior to age 60 continue under file and suspend (along with the 8% annual increase in benefit to age 70)? b) at one time it was my understanding that one could file at full retirement age and then at some later date up to age 70, elect a higher monthly benefit by paying back all of the paid benefit to that date (without interest). Is this option available? c) It was my understanding that under file and suspend, one could stop the suspension of benefits and go back to the original file date with a backdating of all payments as a lump sum and a monthly benefit based upon the original file date. (This would be an advantage if one came down with a terminal illness or just needed the money). Is this still available or is it limited to a backdating of 6 months whether or not you file and suspend?

Steve S from New Jersey posted over 10 years ago:

Another factor in favor of claiming when you are younger is that a person is usually stronger and healthier when younger, can travel more easily, and might better enjoy the money when younger, simply because there is more you can do when younger than older.

DWP from MI posted over 10 years ago:

My spouse is in Group 1, with PIA slightly less than 50% of mine. I am in Group 2. We had both planned to wait till 70 to file, but she filing for spousal benefits after I hit FRA in September. With these changes, she will File & Suspend upon reaching FRA in February. Do I need to File & Suspend before the deadline as well to protect future flexibility? And would spousal benefits now shift to me filing restricted in September?? Still uncertain what strategies are still left for us to maximize payouts??

Charles Rotblut from IL posted over 10 years ago:

Bill, The table showing the example of a one-earner couple is correct. The reason why is that spousal benefits do not receive delayed retirement credits. In other words, Low's spousal benefit does not increase if High delays claiming until after his full retirement age (FRA). Low’s spousal benefits are half of High’s PIA if Low begins spousal benefits at FRA or later (and High must be receiving benefits for Low to be eligible for spousal benefits for this Group 3 couple) . If Low begins spousal benefits before FRA, she gets a lower amount than $1300. -Charles

Ronald Harris from AZ posted over 10 years ago:

Charles This information is all very interesting but the people at the Social Security Administration do not understand or believe it. I am almost 67 (and have not filed for Social Security) and my wife is 63. Because of the April 29, 2016 cutoff date I went to Social Security two weeks ago to "file and suspend" so that my wife would be able to file a restricted application for spousal benefits when she turns 66. The Social Security representative told me that I could not do so. She said that both of us had to be at least 66. I mentioned articles from Social Security Solutions, from Kiplinger's Retirement Report, and from Bob Carlson's Retirement Watch - all stating the same thing that your article states. She said she would talk to their Technical Expert and call me the next day. That was almost two weeks ago and I have not heard back. Perhaps you could use your influence to lobby Congress or the Social Security Administration to quickly train their workers concerning the new law.

Ed Novik from CO posted over 10 years ago:

I would not hold my breath. But Ronald brings up a very good point. Even if we carefully craft an optimal strategy, or what we believe to be one, there is no guarantee that SSA will go along with it, even if we're in the right, as Ronald's example above demonstrates. Does anyone know of an advocate-like group or firm that can intercede on behalf of someone filing for benefits?

P Chiaravalli from MI posted over 10 years ago:

My wife and I were born in 1948 and 1947, respectively. She started receiving SS benefits at 62. When I was FRA (66), I claimed 1/2 of her benefit. When I turn 70, I plan on suspending my spousal benefit and taking my own. She may suspend her own benefit and take 1/2 of mine, if it would be greater than her own benefit. I hope this law does not change our plan and that our plan was legitimate originally.

Ronald Opfer from IA posted over 10 years ago:

I would like to offer a couple of comments to Ronald's situation. 1 - My experience tells me that if Ronald has not received a call back in two weeks when he was told they would respond the next day, then he most likely will never get a call back from that individual. 2 - Generally there are three ways to apply for the SS benefits or get any questions answered that I am aware of. On-line, by calling the general SS 800 number or by visiting the local SS office. I have used both the local office and the 800 number for any of my questions. I also keep notes of the name of the person I talk with, the phone number they or their manager can be reached at, the date and time I talked with them and anything else that might help identify what transpired. I probably would have waited a max of 2 days for the call back. If my original conversation was at the local office and I don't think I'm getting a correct answer or being understood I will then ask to speak to their manager for clarification. Most times I am able to speak to a person with more knowledge and experience at that time and quite often get an answer I am comfortable with. This also gets a person involved that has additional accountability in resolving the situation. And the original person I was talking with learns something new for the next time that question is asked again. 3 - If I am talking to the person at the general 800# then I will also ask to speak to their manager if I don't think I am getting a good answer. Most times I am again able to get transfered so I can explain my question or issue to a person with greater knowledge and experience. The other thing that I have done when calling the general 800# and I am not getting a clear answer is that after the conversation has ended I will call the same 800# back again since I will get a different person on the line, explain my question again and sometimes get a different answer or one that sounds more accurate. They are also logging their conversation and responses into their systems so these can be reviewed by the next person responding to the call. My guess is the SS is needing to ramp up their staffing to respond to these new questions and there may be a larger number of newer staff taking calls. I would be initiating a new conversation with SS early tomorrow morning to try and get a better answer to my questions.

Scott N from FL posted over 10 years ago:

My wife and I both turned 62 in 2015 so file & suspend will not be available to us. Does anything need to be done to preserve the ability to file a restricted application or is it automatically grandfathered? Scott

Charles Rotblut from IL posted over 10 years ago:

Scott, You and your wife are automatically grandfathered in. So long as there aren't further rule changes, you will have the ability to file a restricted application. -Charles

Randy Miller from FL posted over 10 years ago:

A few comments, not for people who did not plan their retirement and thus need anything they can get now. I advise people to stay away from such options as suspend. Now and in the future, governments will be looking for any monies possible (to fund over-promised benefits to seniors) and thus such options can disappear and suddenly. A couple of years ago, recall, the option of filing for SSA, repaying at age 70 (with no interest!), and then taking the higher benefit, disappeared with one month warning--with people forced to take the benefit at the age they were at (could not wait to age 70 as they had planned.) I also recommend always waiting to age 70 to file. The only exception is if you can use the money to travel more (as you may not be able to when older.) (There are also some present value arguments that make some sense to file early--but they are predicated on making 3-4%+ investing (which while I think is very doable, does raise the risk level and takes an awareness of such investing(which I have found many people psychologically cannot do))). The analyses over the break-even point border on senseless. So what if you die before the break-even point?--you are dead and don't care. It is not really a loss. Additionally, people greatly under-estimate how long they may live. Most people (who are retiring now and who take care of themselves) will live well past 100 years.

Frank from PA posted over 10 years ago:

My wife, the lower wage earner, filed for benefits at 62 and I filed a spousal benefit at 66(restricted application) and suspended taking my full retirement benefit. The plan is to take my benefits at 70 and my wife will then file for the spousal benefit which will be appreciably more than she is presently receiving. In this scenario I receive a small monthly allowance until 70 and preserve my higher monthly allotment for my wife in the event of my death. It appears that this will be grandfathered. 1)Am I correct? 2) Do you see a better alternative?

Ronald Harris from AZ posted over 10 years ago:

I appreciate the thoughtful answer given by Ronald O. from IA (above) regarding my experience with Social Security's inability to process my "file and suspend" application under the new law. Before I went to the local office, I called the Social Security 800 number to make an appointment. I was on hold for 40 minutes. When I finally spoke to a representative she asked why I wanted the appointment and when I told her she told me I could not do that and refused to make an appointment for me. I have not called the local Social Security office back yet because I am hoping (probably naively) that if I wait a month or so then maybe SSA will have its guidelines concerning the new law in place and the local offices will be able to correctly process my application.

Michael Muhle from TX posted over 10 years ago:

Regarding the time value of money not being accounted for by waiting until age 70 there is a good article my Michael Kitces on this subject which answers this question and is available at https://www.kitces.com/blog/how-delaying-social-security-can-be-the-best-long-term-investment-or-annuity-money-can-buy/. As stated in the article using internal rate of return (IRR)calculations, "In fact, the return is generally far superior to any risk-adjusted returns that can be achieved over comparable time periods by the available alternatives, whether investing in risk-free bonds, growth equities, or buying a commercially available annuity."

Lynne Alexander from CT posted over 10 years ago:

My husband, who is 66, attempted to go onto the SSA website to file and suspend. SSA has a great website for a lot of reasons, but it is totally inadequate for the purpose of filing and suspending. There is no clear way nor guidance on how to file and suspend online. So, we called SSA. The representative told us we could not file and suspend anymore. Thanks to many AAII articles on this subject and other articles I've read, I was confident that she was wrong. I explained what the new law meant and the deadline for filing and suspending. She wanted to know where I had read this information and I told her. She then googled 'file and suspend', did a bit of reading with me on the line, put me on hold to talk with someone else at SSA, and then told me she agreed with me and it would be best if she made an appointment for us at our local SSA office to put the file and suspend into effect. Please, please, please, get the word out to our legislators that the SSA employees must be educated about this and FAST. It is appalling that the staff at the SSA don't know what they are talking about when it comes to this very small, but financially significant, window of opportunity for many Americans.

James Lopata from CA posted over 10 years ago:

i am 66 and would like to file and suspend my ss benefits. my wife who is still working will be 62 in nov. 2016. or did the new budget act elimate me from doing so?

Charles Rotblut from IL posted over 10 years ago:

James, You have until April 30 to file and suspend, but, to be prudent, I would not wait until the deadline if you intend to do so. -Charles

Peter Yogman from UT posted over 10 years ago:

Dear Mr. Rotblut: I would like to continue the discussion which also John R referenced below my comment. I have contacted Mr. Reichenstein's firm, Social Security Solutions, and run their program. My strategy, making a restricted claim for spousal at age 66 on my wife's benefits which she claims at 62, is in fact viable. Your language regarding not being able to do this is at best misleading. I refer to your language here: "In other words, a spouse cannot receive spousal benefits while delaying claiming on his or her own earnings record until age 70 if his or her PIA is equal to or greater than one half of the other spouse’s PIA. Using a hypothetical same-age couple named Bob and Mary, if Mary’s PIA is $1,500 and Bob’s is $2,000, Mary would be ineligible to claim the lower spousal benefit (one half of Bob’s, or $1,000) at full retirement age while postponing benefits based on her own earnings record." To be clear I am not filing and suspending. I am applying only for a restricted spousal benefit. This option is not repealed under the new regulations according to Social Security Solutions. You need to publish a new article which indicates that this is an important and good strategy because I believe the present article is either wrong or sufficiently misleading that it could hurt the planning process of many AAII members.

Peter Yogman from UT posted over 10 years ago:

I see in the blue box there is this strategy outlined as follows: "Those born on January 2, 1954, or later can still use restricted applications to create a similar strategy, however. If both spouses have earnings records and one spouse files for benefits based on their own earnings record, the other spouse, if at least full retirement age, can restrict their application to only spousal benefits. This allows the second spouse to delay claiming on their own earnings record until they reach full retirement age or older. At age 70, the benefit paid to the second spouse will be the higher of spousal benefit or PIA, adjusted upward to reflect delayed retirement credits." I would recommend emphasizing in the body of the article that this is a viable strategy that has not been phased out. Social Security Solutions also allows this strategy for me and I was born prior to Jan 2 1954 but will not be 66 this year. So again there is something not being made clear. Thanks

Charles Rotblut from IL posted over 10 years ago:

Peter, Restricted applications for spousal benefits are being phased out. Only those who attained the age of 62 by the end of 2015 can file for restricted applications. -Charles

Dean D from CA posted over 10 years ago:

I agree with other commenters that the article seems to contain contradictory and incorrect information. For example, in the box "Limited Opportunity for File and Suspend and Restricted Applications" we read: "Married individuals who were born January 2, 1954, or later can file restricted applications until they turn 70." Yet in the box "The New Social Security Rules" we read: "Those in Group 3 [born Jan. 2, 1954 or later] cannot file for one type of benefit at full retirement age and then switch to another benefit at a later date [i.e., cannot file a restricted application]." And author Rotblut, in his reply dated yesterday, appears to agree with the latter.

Anush Ge from TX posted over 10 years ago:

Does AAII has any plans to publish a X-L spreadsheet based calculator tool to as supplemental to this article.

Charles Rotblut from IL posted over 10 years ago:

UPDATE: The Social Security Administration has officially listed the deadline for file and suspend as April 29, 2016. Here is the statement they released. If you need to go to Social Security Office regarding file and suspend, I would suggest setting an appointment as soon as possible. -Charles

upnorth from AZ posted over 10 years ago:

File and Suspend: My wife and I both started drawing Social Security at 62 from are own records. She is 68 and I am 71. The Social Security office said because we are drawing off are own records we were not eligible to the file and suspend strategy. My Social Security is less and I am 71. But, because she is only 68 that would give her 2 years to draw off mind, and increase her Social Security at age 70. Please, let me know if that is correct!

Charles Rotblut from IL posted over 10 years ago:

Hi CCamp, Regarding restricted applications, if you are grandfathered in, you don't have to do anything right now. You're ability to file restricted application is locked in so long as new legislation is not passed. -Charles

upnorth from AZ posted over 10 years ago:

Please, let me know on the file and suspend and because we filed on our own record we are not eligible to that at this time. Like I said I am 71 years old and my wife is 68. We would like for her to suspend and draw from my record until she turns 70. Is this possible? Social Security said no because we both started drawing from are own record. I am not always comfortable with the answers I get from Social Security, please let me know!

Chet Zaluga from CA posted over 10 years ago:

In the "File and Suspend" box, Mr. Reichenstein says that the wife, Lynn, has PIA of $2,000 and that the husband could file for $800, which he says is half of her PIA. How is $800 half of $2,000?

James Fleshman from TX posted over 10 years ago:

I have been checking our options using a spreadsheet I cooked up. I notice that none of the articles I see discuss present value of the income stream - just total payments. Since we will be either spending our money or the SSA's, getting the money earlier is worth more. Can anyone comment? Also are there useful spreadsheets out there to calculate the income stream? SSA's detailed benefit calculator mostly shows what you already paid. Thanks for an excellent article.

W. D. Koestner from AZ posted over 10 years ago:

This statement in the article: "Applications to restrict the claiming of benefits to just spousal benefits are limited to those who were at least age 62 as of the January 1, 2016." is not supported by the article. This would put that person in group 2. Yet in the blue box it states, "Restricted applications can be filed and used by those in Group 1 and Group 2 if the spouse has already filed for his or her own benefits. To file a restricted application, a person must have attained their full retirement age of 66.." In fact restricting the claiming of benefits to just spousal benefits are limited to those of full retirement age. My spouse who was 62 in 2015 was going to restrict her benefits to just spousal benefits, but was told by a social security employee that she could not do that.

Dan Nettesheim from WI posted over 10 years ago:

In most cases, if you invest & are able to draw SS at 62 take it as early as possible. What most break even analyses fail to account for is your ability to keep that investment money working. You do not have to dip into your investments to meet daily financial needs. For example, when I was 62 most analyses projected my break even point as age 78. I started drawing at 62 & my wife as well, a combined $33k. Now eight years later, I have that $264k (8x$33k) still in investments plus an additional $300k that those investments returned over the past 8 years (admittedly a solid investing environment from 2008 to 2016). No way that even the higher SS payout differential at 70 ever comes close to a break even. On the contrary, even a modest return on the $564k overwhelms the differential going forward. Take SS payouts ASAP!

John Onderdonk from NY posted over 10 years ago:

Hi Charles, I am hoping you can clear up a bit of confusion in my case. I am the high earner and will be 70 next month (May 2016). My wife will not be 62 until this September, 2016. I am, therefore, not able to file and suspend. I am planning on waiting until age 70 to file. Since I will not be suspending, will my wife be allowed to file for spousal benefits at age 66, and let her own account increase until she is 70? Or, would she have to take her own benefit at age 66 which would be higher than her spousal benefit?

Charles Rotblut from IL posted over 10 years ago:

Restricted applications are limited to those who attained age 62 by the end of 2015 (Social Security considers someone to attain an age one calendar day prior to that person’s actual birthday). When you wife files, she will receive the highest benefits she is eligible for. -Charles

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The Changes to Social Security Claiming Strategies

Benefits Are Impacted by the Claiming Date

The Advantage of Delaying

Longevity Risk and Breakeven Ages

Claiming at 67 or 70 for a One-Earner Couple

The New Claiming Rules

File and Suspend: Before and After the Change

The Impact of Suspending Benefits

Determining When to Claim

The New Social Security Rules

Limited Opportunity for File and Suspend and Restricted Applications

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Social Security: Delay Benefits at the Expense of Personal Savings?

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Social Security Basics

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Figuring Taxes on Social Security Benefits

Discussion

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