In previous Social Security Talking Points installments, we laid the infrastructure to understand the various types of Social Security benefits and how you can help your clients to make this very important decision. At this point, you understand Social Security eligibility, how benefits are computed, spousal/children/surviving spouse benefits, Annual Earnings Test, Restricted Application, three-legged stool for married couples and more.
In this installment, we are going to discuss a few lighter topics – Do Over, Voluntary Suspension, Family Maximum and Filing for Benefits. The purpose of this five-part series is to embolden the advisor to be proactive, not reactive in assisting clients with their Social Security options. You are your clients’ trusted advisor. Are you prepared for your clients’ Social Security questions?
Do Over and Voluntary Suspension
There are a couple of strategies that allow your clients to either withdraw their Social Security benefit application or to suspend their benefits.
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Within twelve months of beginning benefits your clients can file Form SS-521 to withdraw their Social Security application. This strategy is known by the very technical term of the “Do Over”! Your client is required to repay all benefits received to utilize this strategy. After benefits are repaid, your client’s Social Security application will be withdrawn, allowing your client to file later. This strategy may be useful when a client files at age 62 due losing a job and then within 12 months becomes employed. In this situation, your client can utilize the Do Over and then refile at a later time.
After twelve months have passed, the Do Over strategy is not available. In this situation, you client upon reaching Full Retirement Age can voluntarily suspend his or her benefits. During the suspension period, your client will not receive any benefits but will earn Delayed Retirement Credits. By suspending benefits and waiting to age 70 to resume, will increase your client’s benefits to a level close to their Primary Insurance Amount. This strategy is generally not suggested when a spouse or children are collecting off the wage earner as their benefits will also be suspended.
The Advisor’s Role – understand the opportunities to utilize the Do Over and Voluntary Suspension.
Social Security rules place a limit on the amount of benefits that can be paid off an individual’s record. This limit is called the Family Maximum and applies to the worker, current spouse, and children. The Family Maximum does not apply to ex-spouses. The family maximum will generally apply when more than two individuals are collecting off the number holder. The Number Holder is the individual on whose record benefits are being filed under. Thus, if Samantha is filing for spousal benefit off of Harry, then Harry is the number holder. As a general rule, multiply the number holder’s PIA by 1.75 to determine the family maximum. Assuming your client’s PIA is $2,000, the family maximum would be $3,500. The number holder will receive his or her PIA of $2,000. The remaining $1,500 will be split equally among others (spouse, kids), collecting off the work record. If one spouse and one child, they each will receive $750. If two kids and one spouse, benefit to each would be $500. Please keep in mind that the maximum payable to a child or spouse is 50% of the number holder’s PIA. Thus, if only one spouse or one child is collecting the family maximum will never be an issue.