We're here today to talk about the many changes made with the Social Security Administration with the legislative changes that were made in November which you may or may not have already heard about. I'm Ashley Stewart, here today with Sarah Babin. We work with Efficient Wealth Management. We want to talk today about what strategies or options have changed with your elections with social security, who it affects and if it affects you, what actions, if any, needs to be taken.
The first strategy I would like to talk to you today about is actually the file and suspend strategy. What file and suspend allows the wage earner to do is they can, at age 66 and or their full retirement age, they can elect a file and suspend their benefit. They can defer it from maybe one, two, up to four years at age 70. They can actually defer their benefit while at the same their spouse ... Since they file and suspended, their spouse can actually claim up to 50% of their benefit during that time period.
If the spouses are within four years of age difference, one spouse for example can be age 66 and they are suspending their benefit till age 70 to get that 8% per year free rate of return of growth on their benefit. While their spouse, at the same time, is maybe age 64 because they're two years apart in age and they're actually getting 50% of the other wage earner's benefit.
This strategy is really great for a lot of couples. What's changed though, is if you're not age 66 by May 1st of 2016, you will be ineligible to file and suspend your benefits. If you've already done it, that's fabulous, but if you are going to be age 66 by May 1st, we strongly encourage you to be able to go ahead and make that election to file and suspend your benefits. If you're not age 66 by May 1st, then unfortunately, you will not be eligible for this strategy.
There's another strategy that I would like Sarah to discuss with you today called the restricted application strategy.
Thank you Ashley. The restricted application strategy that Ashley just mentioned is a strategy that you can take advantage of, a little more loosely than the file and suspend. As long as you have been 62 years old by December 31st of 2015, you still qualify for this strategy. What is the restricted application? The best way to explain this is with an example.
If a husband and wife both reached full retirement age. In this example, we can say at 66 years old, and the husband has a benefit of $30,000 a year and the wife has a benefit of $10,000 a year, the husband may want to defer his benefit until he reaches age 70. That way, he's getting that 8% growth every year that he defers. What they can do instead, is the wife can go ahead and file a normal application through social security and begin receiving her $10,000 a year.
What the husband would then want to do is file a restricted application. That way, he can actually begin receiving spousal benefits based on his wife's benefit. What that means is that the wife would be getting $10,000 a year and the husband would then be getting $5000 a year up until the point that they reach age 70. We would switch the benefit and the husband would begin taking his full benefit of what might be $40,000 a year now and the wife would then be able to claim her spousal benefit on her husband of 50% of that 40 which could be $20,000 a year.
Now, this is a strategy best used if the couple is within about four or five years in age. Like I said, they have to have reached age 62 by the end of 2015. Unlike file and suspend, there is no immediate action necessary. What we need to be aware of is, is that you still qualify. What we will do is let you know once you've gotten close to that full retirement age, what needs to happen.
Thank you for that explanation Sarah. Now, if you're a client of EWM, we're going to talk about this in your next meeting, but if there is an action item to be taken before May 1st, say you're going to be 66 before May 1st, you will hear from your relationship manager or your adviser to make sure that you take action before May 1st.
Now, if you're not a client of EWM and you would like more information on either of these strategies, we do offer something called the second opinion service which is an evaluation of your current financial situation. If you would like more information on this, you can call at 281-528-1200. As always, we wish you the best of investing success.
Powell, Robert. "File and suspend Social Security loophole closing fast." USA Today. http://www.usatoday.com/story/money/columnist/powell/2016/04/12/file-and-suspend-social-security-loophole-strategy/82487596/ (accessed April 14, 2016)