We have written in the past about the elimination of the popular “File & Suspend” Social Security filing strategy and we are now officially beyond the April 29, 2016 deadline for applications to be submitted for that strategy. If you didn’t meet the age requirements to file before the deadline, don’t despair, you may still be able to use your spousal benefit to get a little more out of the Social Security by filing a Restricted Application. The Restricted Application strategy is still available for those who attained age 62 by the start of 2016. Here is how the Restricted Application strategy could potentially benefit you and how it works.
As with most Social Security optimization strategies Restricted Application is fundamentally based on the premise that Social Security rewards those who wait. For every year that you wait to file for Social Security, your benefit grows by 8% per year. But waiting is hard, so wouldn’t it be great if you could get paid while you wait. You can! By filing a Restricted Application you can have Social Security pay your spousal benefits (if you are married) while letting your own benefit grow. Filing a Restricted Application basically means ‘restricting’ your Social Security filing to only your spousal benefits. Here is an example of how the strategy works:
A wife, age 62 and a husband age 66 want to retire this year. Each is eligible to receive a benefit of $2,000 per month Social Security Benefit at their Full Retirement Age of 66. However, because the wife has not reached her Full Retirement Age, her monthly benefit will be reduced if she files for her Social Security Benefits now. This couple could benefit from filing a Restricted Application while allowing the husband’s benefit to grow until age 70.
The husband’s own benefit increases 8% per year from age 66 to age 70, resulting in a monthly benefit that is 32% higher. The annual difference in income would be $7,680 (640 per month times 12 months)
Before you discount this strategy because of the need to ‘wait’, remember that the benefits that we are talking about are not just about you, they are also about your spouse. The survivor benefit to your spouse will be dependent upon when you choose to start taking social security. And while you may worry that you aren’t going to live that long, there is actually a 72% chance that one spouse will live to age 85 and a 45% chance that one spouse will live to age 95. Over the lifetime of most married couples, this strategy will result in a substantially larger benefit.
Social Security is an incredibly complex topic but is also a significant benefit and it pays to analyze your situation carefully before filing. If you would like to discuss your situation to see what could benefit you, please feel free to give us a call for a customized analysis.
"Social Security Strategies: The Restricted Application for Spousal Benefits." PacificLife. http://www.annuities.pacificlife.com/public/salesmaterials/salesideas/23175.pdf
"Plan for a Long Retirement." Vanguard. 2016. https://personal.vanguard.com/us/insights/retirement/plan-for-a-long-retirement-tool