New Social Security Rules Causing Confusion Among Retirees

New Social Security Rules Causing Confusion Among Retirees

What’s the deadline for filing and suspending? Should I do it online or in person? What’s the difference between Apply and Suspend versus Restricted Applications? Should I take Social Security now or wait?

Confusion among retirees with the new Social Security rules

We’ve been getting a lot of phone calls about the impending changes in the Social Security rules. Before I tell you about some of those calls, and explain how real people like you are dealing with potentially confusing Social Security decisions, I wanted to give you a quick update on some important dates.

Deadline for File and Suspend (or Apply and Suspend) for Social Security

If you plan to file for your own benefits and then suspend them, April 29, 2016 is an important date.  If you file and suspend by that deadline, your spouse, when eligible, can then file for and collect spousal benefits from Social Security while your own continue to grow by Delayed Retirement Credits (DRCs).

Applying for Social Security Online or In Person

Many of the people we’ve talked to are concerned because they can’t even get an appointment with their local Social Security office until well after the deadline One way to apply is to call your local Social Security office before April 29, 2016 and schedule an appointment for after the deadline.  The act of scheduling the appointment creates what is called a protective filing date, a concept which is covered in detail in my blog post of April 13, 2016.  As I said in that post, I’m a little nervous about relying on a protective filing date.  I am encouraging my own clients who are eligible, to just file online by April 29, 2016.  I’ve had several clients report back to me that they applied online, and thought that the process was fairly simple.  If you want to apply online, please note that there is no specific form that you need to fill out, that is titled “Apply and Suspend”.  When you get to the very bottom of your application, there is a comment box.  You need to write a comment in the box and say something like “It is my intention to file for and then suspend my benefits.  I do not want to receive any checks until I turn 70.”  That’s all that is required, but you do need to spell out your intentions very clearly.  Please be sure that you print a copy of your application for your own records.

Apply and Suspend Vs Restricted Applications

Are you confused about whether Applying and Suspending is the best option for you?  It’s not the right answer for everyone.  My blog post of April 8, 2016 covers some situations where it might do more harm than good.  One of those includes scenarios where it is more beneficial for one of the spouses to file a Restricted Application.  Some examples of how Restricted Applications can be beneficial are covered in my blog post of April 22, 2016.

Is it Better to Take Social Security Now or To Wait?

Are you concerned about suspending your benefits because you were planning on using the money to live on?  If you have been accumulating money in IRAs and retirement plans, it might actually make more sense for you to spend that money first, and allow your Social Security benefits to grow.  This idea is covered in my blog post of April 12, 2016.  This particular strategy isn’t for everyone, and there are so many variables to consider that we have to go through a lot of calculations before we can make specific recommendations about it.  Do you think there’s a possibility that it might make sense for you to spend your retirement money first?  If so, you should apply for and suspend your Social Security benefits now assuming that it is the right technique for you.  Although we can’t possibly do it by April 29, 2016, we’d be happy to have our team do the math for you to see how spending your retirement money first might benefit you.  If we find that you’re better off to spend your Social Security money and leave your retirement plans untouched, then you can always unsuspend your benefit.

We’ve had many calls from people who have questions about Social Security.  Please check back tomorrow, when I’ll discuss some more of the real-life situations readers are wrestling with.

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Are you confused about how the Apply and Suspend strategies can benefit you?  Please do not ask your local Social Security office for advice, because they can only present your options about government benefits!   The decisions that you make about this affect far more than just your Social Security benefits, and could have unintended complications and/or repercussions if they are not made considering the big picture.

Getting your Social Security decision right is important, but it is even more important that you have the right strategies for all of your planning.  To find out if your entire financial house is in order, fill out this pre-qualification form by clicking here to see if you qualify for a free consultation. Western PA residents only please.

Don’t delay. Go to www.paytaxeslater.com/ss to get your free digital copy of The Little Black Book of Social Security Secrets, and then talk to a professional about your options before it’s too late.

 

Restricted Applications vs File and Suspend – Which is Best?

Restricted Applications vs File and Suspend – Which is Best?

Tony, 72, and Maria, 67 are both still working full time. Tony already applied for Social Security, Maria has not. Should Maria wait to apply?

Thanks again to all of you for your interest in my new book, The Little Black Book of Social Security Secrets.  I’ve received a lot of questions about the best Social Security strategies for married couples, and my most recent blogs have given some examples where the File and Suspend strategy might be beneficial.  Now I want to cover some examples for those of you who have two-income households, and who might benefit from filing a restricted application for benefits.

Tony, 72, and Maria, 67, read my book and wondered if they should reconsider their Social Security strategies.  Both are still working, and full time.  Tony applied for his benefits as soon as he was eligible, at age 62.  Maria has not applied yet. Should Maria apply for benefits, or should she wait?  This question, unfortunately, is not as straightforward as you might hope.  Let’s look at all of the facts.


Filing a Restricted Application for Spousal Benefits

Tony is already receiving his Social Security checks, so he doesn’t have a lot of options.  But what options does Maria have?  Because she was Full Retirement Age (FRA) on December 31, 2015, she can file a restricted application for benefits and specify that she only wants to receive a spousal benefit.  Her spousal benefit is a percentage of the benefit based on Tony’s earnings record.  In order to be able to file a restricted application for spousal benefits you must be at least FRA, so in this case Maria will receive the maximum spousal benefit of 50 percent.  Filing a restricted application for spousal benefits allows Maria to collect some income from Social Security while the benefit payable based on her own earnings record grows by Delayed Retirement Credits (DRCs).  When she turns 70, she can switch to her own benefit if is higher than her spousal benefit.

Suppose Tony was only 60, and had not yet filed for his own benefit?  Maria wouldn’t be able to file a restricted application for spousal benefits unless Tony has filed for his own benefit.  She could apply for benefits based on her own earnings record, but then she’d miss out on those DRCs.

Suppose Tony is 67, and regrets that he started taking his benefits at 62.  Can he suspend them without affecting Maria’s spousal benefits?  The answer is yes, but only because we’ve changed Tony’s age and are now assuming that he’s 67.  You have to be at least FRA, but not yet 70, in order to suspend your benefits after you’ve started collecting them.  Why even bother then?  Think about it for a minute.  If Tony was able to suspend his benefit, the couple could still receive some income from Social Security (Maria’s spousal benefit), while at the same time allowing Tony’s to grow by DRCs.    When he unsuspends them, Tony could receive a higher benefit amount, and for the rest of his life.  (Don’t forget – if Tony wants to suspend his benefit, he needs to do so by April 29, 2016!)


Restricted Application Deadline

Many people have asked what the deadline is for them to file a restricted application, and unfortunately the answer is not as straightforward as for those who want to file and suspend.    The rule is that, if you were at least 62 on December 31, 2015, you can file a restricted application when you reach your FRA.  What if Maria is 63? In that case, she couldn’t file a restricted application for benefits right now, but she could do so when she reaches her FRA (for our purposes here, 66).  What if Maria is 60?  If she is, she will never be able to take advantage of this technique because she was not at least 62 on December 31, 2015.

In real life, my advice would not stop at telling Maria that she should probably file a restricted application. In the original scenario, Maria is 67 and is not collecting Social Security benefits of any kind right now.  She could have filed a restricted application for spousal benefits as soon as she turned 66, and she wouldn’t have affected Tony’s benefit or the benefit based on her own earnings record at all.  Maria’s missed out on a lot of money!  The first thing I would tell her is that, when she files her restricted application, she should ask for retroactive spousal benefits.  Retirement claims can be paid for up to six months retroactively.


Changes When Filing a Restricted Application

I’d also want to take a closer look at Tony and Maria’s tax picture, and point out some possible changes that they may not have considered.  They have income from their jobs, income from Tony’s Social Security, minimum required distributions from his IRAs, and now they’ll have even more income from Maria’s spousal benefits.  Just how bad will the news be for them on April 15th?

Interestingly enough, Tony and Maria have some options available to them that non-working couples do not.  Assuming that they don’t need Maria’s Social Security income to live on, I would ask them to consider putting that money right back in to their retirement plans at work.    Most of you who read this column regularly know that, once you turn 70 ½, you are generally required to start taking minimum distributions (RMDs) from your IRAs.  Some of you may not be familiar with the exception to the rule, though, that applies to individuals who are still working at that age.  If you are still working, you are not required to withdraw money from your work retirement plan when you turn 70 1/2.  You’re not required to withdraw anything from your work plan at all, until you stop working.    There is an exception to this exception, and it applies if you own more than 5 percent of the company.  If this is the case, you must take RMDs from your retirement plan at work when you turn 70 ½, even if you are still working.

Here’s another idea for those of you who are still working, and who have IRAs in addition to a work retirement plan.  Assuming that the rules of your own plan allow it, you can roll any IRAs that you have in to your work retirement plan.  You would not be required to take minimum withdrawals from the plan, or any of the IRAs that you rolled in to it, until you stop working.

Suppose Tony and Maria both work for a large employer, such as the local university?  If they are still working, they can still contribute to their work retirement plans regardless of their ages.  If they are not already contributing the maximum possible to their work retirement plans, they can use Maria’s new income from her spousal benefits to increase their contributions.    If their employer offers them a choice of pre-tax and Roth accounts in their plan, they can allocate their contributions strategically once they have evaluated their short-term and long-term goals.  Increasing their contributions to the pre-tax account might help their current tax situation, but increasing contributions to the Roth might be more beneficial in their later years.  This is because, as of this writing, you are not required to take minimum distributions from a Roth account.  And, if you do take distributions from a Roth account, they will most likely be tax-free.

Suppose Tony and Maria are self-employed, and have a SEP or a SIMPLE retirement plan for their business?  In that case, they would fall under the 5% ownership rule, and must take minimum distributions from that plan when they turn 70 ½.  But they still might be able to manage Maria’s new income from Social Security more effectively than by just allowing it to accumulate in the bank.  If you have earned income, the IRS permits you to contribute to an IRA.  In 2016, the annual contribution limit is $6,500.  Assuming that Tony and Maria both earned more than $6,500 they could each contribute the maximum to an IRA.  But wait!  Isn’t it against the rules to contribute to an IRA after you turn 70 ½?  Well, you can’t contribute to a traditional IRA after you turn 70 ½, but you are allowed to contribute to a Roth IRA regardless of your age as long as you meet certain income guidelines.  So Tony could contribute to a Roth IRA, and Maria could contribute to either.

What if Tony became ill, and was no longer able to work?  If Maria is still working, and assuming that she earns enough money, she can still contribute to her own IRA.  She can also contribute to a spousal Roth IRA for Tony.  The amount that Maria can contribute to both IRAs is limited to the amount of taxable compensation that they report on their tax return.  But if she made more than $13,000 in 2016, it would be possible for her to put $6,500 in her own IRA, and $6,500 in Tony’s Roth IRA.

So what’s the bottom line?  Even if you are worried about how collecting Social Security will affect your tax picture, you can minimize the impact – especially if you continue to work.

Please check back soon for my next post, which will answer some really complicated scenarios that readers have posed.  Thanks for the questions!

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Are you confused about how the File and Suspend or Restricted Application strategies can benefit you?  Please do not ask your local Social Security office for advice, because they can only present your options about government benefits!   The decisions that you make about this affect far more than just your Social Security benefits, and could have unintended complications and/or repercussions if they are not made considering the big picture.

Getting your Social Security decision right is important, but it is even more important that you have the right strategies for all of your planning.  To find out if your entire financial house is in order, fill out this pre-qualification form by clicking here to see if you qualify for a free consultation. Western PA residents only please.

Don’t delay. Go to www.paytaxeslater.com/ss to get your free digital copy of The Little Black Book of Social Security Secrets, and then talk to a professional about your options before it’s too late.

 

Should you use the Claim Now, Claim More Later Strategy for your Social Security?

The Little Black Book of Social Security Secrets, James LangeThe Apply and Suspend strategy will be eliminated on April 29, 2016, so you must act now to take advantage of it.  For those of you who cannot use the Apply and Suspend technique, there is another way that you may be able to maximize your benefits, though, which involves filing a Restricted Application (also known as Claim Now, Claim More Later). The great news is that you can take advantage of this strategy until December 31, 2019, assuming that you were at least 62 years old as of December 31, 2015.

If both you and your spouse have worked over the years, and if both of you have applied for benefits, Social Security will look at your earnings histories before they pay a benefit to either of you.  If it is more advantageous for you to receive a benefit based on your own earnings record, that’s the benefit that they’ll pay you.  If it is more advantageous for you to receive a spousal benefit, which is 50 percent of what your spouse gets, they’ll increase your benefit to equal that amount.

Under the old rules, there was nothing that prevented someone for applying for benefits, but restricting their application to their spousal benefit.  Why bother?  There is a very important reason.  If you tell Social Security that you are specifically applying for just your spousal benefit, your own benefit will be increased by Delayed Retirement Credits that equal 8 percent every year.  When you turn 70, you are not eligible to earn any more Delayed Retirement Credits, but you can then tell Social Security that you want to switch to your own benefit – which presumably at that point will be higher than your spousal benefit.

This strategy can allow eligible claimants to collect up to $60,000 in additional Social Security benefits.  In order to make it work, though, all of the pieces have to fall exactly in the place.  At Full Retirement Age, which is 66 for our purposes here, the spouse who wants to take advantage of it must file for benefits and specify that he is restricting his application to spousal benefits only.  He can then collect spousal benefits until he reaches age 70.

Let’s look at an example.  Mike and Mary are both 66, and since they were born between 1943 and 1954, are Full Retirement Age for Social Security purposes.  Mike’s Primary Insurance Amount (PIA) is $2,000 and Mary’s is $800 and, both can file for these benefits now since they are 66.  But what happens if Mary is the only one who files for her own benefit at age 66? Mike can then file for benefits, but restricts his application to just his spousal benefits.  He collects $400 (half of Mary’s PIA) and, between them, they receive $1,200 from Social Security every month.  When he turns 70, Mike can switch and collect his own benefit.  By then, his own benefit has grown by 8 percent plus cost of living adjustments every year.  Instead of receiving $2,000 every month, he will receive $2,920.  Better yet, Mary can also switch and receive a spousal benefit that is half of Mike’s PIA – or $1,000.  By taking advantage of this technique, Mike and Mary have increased their Social Security income significantly – and they receive it for the rest of their lives.

In order for this to work, the person who is filing the Restricted Application must be 66 or older.  You cannot collect spousal benefits using this technique if you are younger than 66.  Keep in mind, too, that this strategy will be eliminated in 2020.  As long as you were born before 12/31/1953, you will be allowed to file a Restricted Application as soon as you turn 66.  If you were born after 12/31/1953, you can’t take advantage of this option.

Are you confused about how the Claim Now, Claim More Later or the Apply and Suspend strategies can benefit you?  Please do not ask your local Social Security office for advice, because they can only present your options about government benefits!   The decisions that you make about this affect far more than just your Social Security benefits, and could have unintended complications and/or repercussions if they are not made considering the big picture.

Getting your Social Security decision right is important, but it is even more important that you have the right strategies for all of your planning.  To find out if your entire financial house is in order, fill out this pre-qualification form by clicking here to see if you qualify for a free consultation. Western PA residents only please.

Don’t delay. Go to www.paytaxeslater.com/ss to get your free digital copy of The Little Black Book of Social Security Secrets, and then talk to a professional about your options before it’s too late.

 

Time is Running Out to Maximize Your Social Security Benefits

The Little Black Book of Social Security Secrets, James LangeThere were two married couples, the Rushers and the Planners, with identical earnings records and investments. The Rushers didn’t read this book and during retirement, they ran out of money. Bad news. The Planners, however, took the time to read this short little book, implemented the recommended strategies, and when the Rushers were barely scraping by, they still had $2,013,881.

If you want to be a Planner and not a Rusher, please go to www.paytaxeslater.com/ss and sign up to receive your free digital copy of The Little Black Book of Social Security Secrets on the day it comes out.

Eligible married couples must act by April 29, 2016 to take advantage of the two strategies that will allow them to maximize their income from Social Security.

Why?

Because a certain provision buried in the fine print of the Bipartisan Budget Act of 2015 eliminates the two strategies: Apply and Suspend and Restricted Applications for Benefits.

If you are married and will be at least 66 by April 29, 2016, you should read this book to learn whether it would benefit you to apply for and suspend your benefits by the deadline.

The Potential Benefits of Apply and Suspend for Social Security, James Lange, CPA/Attorney, Pittsburgh, PAApply and Suspend works this way. You file an application for benefits at age 66 (or later) and then suspend them – meaning that you will not receive monthly checks. There’s good reason to consider doing this. For each year that your benefit remains suspended, it grows by 8 percent (up to a maximum of 32 percent), plus cost of living adjustments. When you finally begin collecting checks at age 70, they’re significantly higher than they would have been if you had begun collecting them at age 66 – and they stay that way for the rest of your life. If you change your mind and want to start receiving your checks after you’ve suspended them, you can do so at any time.

Better yet, your spouse will be eligible to apply for spousal benefits—which can be as high as 50 percent of your benefit at age 66—as soon as she is age 62. This will give your family some income from Social Security during the years that your own benefit is suspended. (If her own benefit is higher, then a different strategy should be used).

But you must Apply and Suspend by the deadline, April 29, 2016, to be grandfathered under the old rules. If you do not apply for and suspend your own benefits by April 29, 2016, your spouse will not be allowed to collect a spousal benefit unless you are also collecting your own benefit.

The second strategy, called a Restricted Application for Benefits, allows you to file for benefits and specify that you only want to receive whatever spousal benefit to which you might be entitled. Depending on your age, it could mean a monthly check as high as 50 percent of your spouse’s benefit, while your own benefit continues to grow by 8 percent, plus cost of living adjustments, every year. When you turn 70, you can then switch to your own benefit if it is higher than your spousal benefit.

If you were at least 62 years old as of December 31, 2015, you will be able to file a Restricted Application for Benefits. In order to file a restricted application, you must wait until your Full Retirement Age – which is 66 for those who will be able to take advantage of the strategy before it is eliminated.

Clearly, maximizing Social Security benefits is to your advantage. What many people do not realize is just how important it can be to the surviving spouse. If you are the higher earner and you make the right choices, your spouse will be eligible to receive a survivor’s benefit which, at maximum, will be as high as your own benefit amount. But, two of the strategies that you can use to maximize your benefits are being eliminated.

Don’t delay. Go to www.paytaxeslater.com/ss to get your free digital copy of The Little Black Book of Social Security Secrets, and then talk to a professional about your options before it’s too late.