Social Security Strategy: What's Still Possible?
A once-common approach for maximizing Social Security payments, which involved collecting spousal benefits while individual retirement benefits continued to grow, has largely been phased out. This change, implemented by the Bipartisan Budget Act of 2015, primarily impacts those born after January 1, 1954. Consequently, many individuals are discovering that this favored method is no longer an option, requiring a reevaluation of their retirement planning strategies.
Despite these changes, several avenues remain open for couples to strategically manage their Social Security benefits. These include delaying claims for the higher earner to boost their eventual payout, carefully sequencing survivor benefits, and leveraging provisions available to divorced spouses. Understanding these updated rules is crucial for current and future retirees to optimize their financial security in their later years.
The Evolution of Social Security Claiming Strategies
Previously, a significant number of retirees, particularly those from the baby boomer generation, utilized a strategy that allowed them to collect spousal benefits once they reached their full retirement age (FRA), while simultaneously letting their individual Social Security benefits accumulate delayed retirement credits. This approach provided a temporary income stream, enabling their own benefits to increase by approximately 8% annually until age 70, at which point they would switch to their substantially larger personal benefit. This method effectively offered a "two-switch" option, granting couples considerable flexibility in maximizing their overall lifetime Social Security income.
However, the legislative landscape shifted with the introduction of the Bipartisan Budget Act of 2015. This act significantly altered the rules, particularly for individuals born after January 1, 1954. The new "deemed filing" provisions largely eliminated the ability to file a restricted application for spousal benefits alone. Under the revised regulations, when an individual applies for either their own retirement benefit or a spousal benefit, they are effectively considered to be applying for both simultaneously. If their personal retirement benefit is lower than the potential spousal benefit, Social Security will pay their own benefit first and then add enough from the spousal benefit to reach the higher amount. This change removed the critical flexibility of allowing one benefit to grow independently, thereby closing off a popular and effective strategy for boosting retirement income for most new claimants.
Navigating Current Social Security Options
While the "restricted application" strategy is largely gone for younger generations, certain coordinated claiming decisions remain beneficial for couples. One key strategy involves the higher-earning spouse delaying their claim for retirement benefits until age 70. This delay can lead to a substantial increase in their monthly payout, approximately 8% per year, which then provides a larger foundation for the household's future income. This is particularly advantageous as it also enhances the potential survivor benefits for the remaining spouse, offering greater financial security.
Another important consideration is the sequencing of survivor benefits. Unlike personal retirement and spousal benefits, survivor benefits can often be claimed independently. This means that a widow or widower may choose to collect survivor benefits first and then switch to their own retirement benefits later, or vice versa, depending on which strategy yields the highest overall lifetime income. Furthermore, divorced spouses also retain specific independent filing rules, potentially allowing them to claim benefits based on an ex-spouse's record under certain conditions, even if the ex-spouse has not yet claimed their own benefits. Understanding these nuanced rules and consulting with a financial advisor can help individuals and couples make informed decisions to optimize their Social Security benefits in the current regulatory environment.
