Social Security: Planning Now and in the Near Future

January 21, 2016

Let's ring in 2016 with an important reminder regarding the phaseout of two Social Security claiming strategies: file and suspend and the restricted application.

Currently, these strategies allow spouses (and, under certain circumstances, other family members and ex-spouses) to receive payments in the form of a dependent benefit while capturing delayed retirement credits for a retirement benefit. 

The phaseout of each strategy has two dates: one for determining who is still eligible and the other for marking the strategy's implementation. For file and suspend, the worker must be age 66 or older by April 29, 2016, to be eligible to suspend a retirement benefit from which a dependent benefit may still be paid. The worker must also have implemented the strategy by this date.

To be eligible to claim a spousal dependent, while capturing delayed retirement credits on his/her own retirement benefit by filing a restricted application, the dually eligible spouse must be age 62 or older on January 1, 2016. An odd rule from Social Security states, "If you were born on January 1st of any year you should refer to the previous year."

To implement this strategy, that spouse must wait (1) until his/her full retirement age (FRA) to file the restricted application and (2) for his/her spouse to file for a retirement benefit (which could be in 2020 or later).

The following chart fleshes out additional details of these new rules. For more details, please go to www.ssa.gov.

 

 

File and Suspend

(so that others can claim their benefits based on worker's earnings record)

Collect Retroactive Retirement Benefit

Restricted Application

(typically receives 50% of spousal benefit until age 70 AND then switches to own retirement benefit)

Who Considers This Option

(Assumes full retirement age (FRA) is age 66)

Worker reaches FRA with dependents

Worker reaches FRA (and has filed and suspended own retirement benefit)

Dually eligible beneficiary (married spouse OR divorced spouse*) at FRA

*Married for at least 10 years and currently unmarried

Why Consider This Strategy

- Annual 8% delayed retirement credits (DRCs) for worker’s retirement benefit

- Spousal benefit for spouse

- Dependent benefit for dependent(s)

- Affords a do-over of claiming decision (e.g., need the income, shortened life expectancy)

- Collect suspended payments as lump sum by forfeiting DRCs

- Can elect spousal benefit as early as age 62, but, by waiting until FRA, can “restrict application to spousal benefit”

- “Delayed” retirement benefit receives annual 8% DRC until age 70

Individuals Not Impacted by Changes

PLEASE NOTE: We are still awaiting the exact cut-off date from the Social Security Administration

Reach FRA by 4/29/16 AND file and suspend own retirement benefit by 4/29/16 Reach FRA by 4/29/16 AND file and suspend own retirement benefit by 4/29/16

- Dually eligible beneficiary age 62 or older by 1/1/16

- This option will be available when he/she reaches FRA

- Other spouse must be receiving his/her retirement benefit

What Is Changing

PLEASE NOTE: We are still awaiting specifics from the Social Security Administration

- If worker files and suspends own retirement benefits, other dependent benefit(s) will also be suspended

- May still be considered if worker claimed retirement benefit early (i.e., reduction in benefits) and decides to suspend and earn DRC from ages 66 to 70

This option is eliminated

This option is eliminated

- Dually eligible beneficiary is deemed to be filing for both retirement and spousal benefits and will receive the larger of the two benefits

The next few months provide an opportunity to review with clients and prospects these rule changes and help them plan for retirement income that includes Social Security benefits.

Should you have any additional questions, please feel free to contact Retirement Strategies Group at (800)722-2333, ext. 3939, or e-mail us at RSG@PacificLife.com.


Attachments/Links:

Picture of Pacific Life Annuities

Pacific Life offers a broad and diversified range of products and solutions designed to help individuals and families achieve asset growth, sustainable retirement income, and long-term financial independence. We also help businesses manage and fulfill their long-term retirement plan commitments to employees.

Pacific Life, its distributors, and respective representatives do not provide tax, accounting, or legal advice. Any taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor or attorney.

Pacific Life is a product provider. It is not a fiduciary and therefore does not give advice or make recommendations regarding insurance or investment products.

Pacific Life refers to Pacific Life Insurance Company and its affiliates, including Pacific Life & Annuity Company. Insurance products are issued by Pacific Life Insurance Company in all states except New York and in New York by Pacific Life & Annuity Company. Product availability and features may vary by state. Each insurance company is solely responsible for the financial obligations accruing under the products it issues. 

Variable insurance products are distributed by Pacific Select Distributors, LLC (member FINRA & SIPC), a subsidiary of Pacific Life Insurance Company (Newport Beach, CA) and an affiliate of Pacific Life & Annuity Company. Variable and fixed annuity products are available through licensed third parties.

No bank guarantee • Not a deposit • Not FDIC/NCUA insured • May lose value • Not insured by any federal government agency