In our last post, we had indicated that the option to "File and Suspend" for social security benefits is coming to an end. This post will expand on that a bit.
Under the "File and Suspend" method, married couples could have the higher income spouse elect to file for benefits (currently age 66), but then suspend the benefits until a later date (usually age 70) which would allow Social Security credits to grow at 8% per year. The lower earning spouse would then claim benefits based on the higher earning spouse's earnings record, which is more than his or her own earnings record.
The recently passed budget bill had a provision labeled "closure of unintended loopholes"; the Act effectively eliminates this option for claims filed after April 30, 2016. Therefore, if you will be age 66 before April 30, 2016 and you meet the criteria of using this "File and Suspend" option, you should consider claiming under this method since it will pay more than other methods and is still allowed under the law. If you wait after that date, you can no longer file under this method.
Social Security does provide a great opportunity to lock in a nice 8% annual increase in benefits between age 66 and age 70 and have it indexed to inflation. If you sign up for retirement at age 62, your benefit will be about 20%-35% lower than waiting to full retirement age (FRA). For every year that you wait after FRA you will get an 8% boost in your annual benefits until age 70 when it is capped.
For example, if your monthly benefit at age 66 is $1,000 and you wait until age 70 to start collecting, your monthly benefit will increase to $1,320 (in today's dollars).
Most people seem to want to start collecting benefits at age 62 primarily because they don't trust benefits will be there for all of their life or they are not sure how long they will live. If your family history suggests living to at least age 80, you generally should consider waiting until age 70 to start collecting. Age 80 is about the breakeven point for all social security starting dates (Age 62-70). If you live less than age 80, then starting at age 62 will pay the most. If you live past age 80, then waiting to age 70 is usually the best.
Social Security planning can be a difficult concept to understand. If you need help with your options, there are several advisors that can help. Our firm has several experts that advise our clients on their options and let me know if you need any help.