New Social Security Rules: How to Maximize Benefits

It has been over a year since the new rules governing Social Security claiming strategies were released, and the changes are still confusing to clients and even many advisors. Many of the favorable tactics that were previously available have been eliminated, including the popular file-and-suspend strategy that allowed married clients to maximize their Social Security benefit. 

Unfortunately, this means that some clients may fail to properly plan in order to engage Social Security claiming strategies that can produce a higher total retirement benefit. While many of the old strategies have been eliminated, action can still be taken in order to obtain the highest possible Social Security benefit. 

As a result, it’s crucial that advisors gain a comprehensive understanding of the new rules and how they may apply to a client’s situation in order to avoid leaving valuable Social Security benefits on the table.

The New Social Security Regime

The rules governing Social Security claiming have changed, but valuable techniques still exist to help clients make the most of their Social Security retirement benefits. Although the file-and-suspend strategy is generally now unavailable for most clients, for older clients (those who were at least 66 years of age by April 29, 2016) who have already filed and suspended, the strategy remains available. Under the new rules, clients can still file and suspend, but the benefits received by others (a spouse or dependent) that are based on the client’s earnings record are also suspended.

Divorced spouses, however, may continue to receive benefits even if one spouse chooses to suspend his or her benefits. 

If one spouse is receiving benefits (or has filed and suspended before the April 29 deadline), a second spouse is permitted to receive his or her spousal benefit (generally, one-half of the first spouse’s retirement benefit). These benefits are known as a restricted spousal benefit, and remain available even after implementation of the new rules.

A spouse of a client who filed and suspended before the deadline is entitled to collect his or her full retirement benefit if he or she was 62 years of age on January 1, 2016.

For clients who were born in 1954 or thereafter, the option of choosing between two spouses’ benefits is no longer available—the client will automatically receive the higher of the two benefits when he or she applies for Social Security (known as a “deemed filing” requirement).  The client will automatically be deemed to apply for both available benefits.

Surviving spouses (or divorced surviving spouses) are not subject to this rule, and are still permitted to apply for survivor benefits and subsequently switch to his or her own retirement benefits at a later date if the retirement benefit would produce a higher total benefit.  Deemed filing also does not apply to a client who is receiving a spouse’s benefit and is also entitled to disability benefits.

File and Suspend of Years Past

In the past, the file-and-suspend strategy allowed one spouse to begin collecting spousal benefits without jeopardizing the amount of the second spouse’s retirement benefit. The second spouse was permitted to file for his or her benefits and then make a subsequent filing to suspend those benefits.