Editor's pick: Originally published Jan. 15.
Late last year, Congress slammed shut two giant Social Security loopholes that had let some lucky pensioners up their take by tens of thousands of dollars. But the financially wily will note those loopholes are not quite closed. There remain tactics for maximizing Social Security over a lifetime, but eligible recipients need to act fast, though, because time is running out.
First: what exactly did Congress do? Congress ended benefits that put more money in the pockets of savvy married couples. Loophole one saw the higher earning spouse filing for benefits - then immediately suspending them. That let the lower earning spouse file for spousal benefits - generally 50% of the spouse’s haul - without touching his or her own benefits. That strategy -- called File and Suspend - let the lesser earning spouse delay filing to collect his or her own benefits, allowing them to grow over time (put off collecting until age 70, and the Social Security payout is some 8% higher annually than it would have been if collected at 62, the youngest age able to collect). The higher earning spouse's benefits also remained untouched so they, too, grew. And all the time the lesser earning spouse enriched the family coffers with a monthly spousal benefit (often upwards of $1,000).
A variation - called File and Restrict - let an applicant file only for spousal benefits. Again, that meant the person’s own benefits could continue to grow.
Under the new rules an applicant can collect his own benefits, or spousal benefits, but not both.
Many tax experts insisted this end to these loopholes is a good thing, that only very savvy filers - often ones with the resources to pay independent Social Security experts - had benefited.
But those benefits are in fact not quite closed. Anyone born before mid 1950 can still file for “File and Suspend” up until April 30, 2016. “There is a lot of interest in filing for these benefits now,” said Evan Beach with Campbell Wealth Management in Alexandria, Va.
Experts warned that those who want this benefit should apply at the soonest and not wait until the last minutes.
As for "File and Restrict," many are grandfathered in and can still apply. Beach elaborated: “If you are 62, you can still do the restricted application.” For all practical purposes, those in the 62+ crowd have up to four years to use this tactic, said Beach. For those who are younger, consider it vanished.
Note too: anybody already collecting under either strategy is good to stay. Congress did not claw back benefits already awarded. Divorced spouses and windows also can continue to file for spousal benefits, as had been done. Congress did not attack those payouts.
Note as well: Social Security recipients will still be able to use File and Suspend, as regards collecting their own benefits. Why would a person do that? Usually because he or she was out of work and filed for Social Security. Flashforward and the person gets a new job. So the smart thing to do is “suspend” collecting Social Security, thus accumulating an 8% boost every year Social Security collection is delayed (up until age 70 when no further bonuses accrue, even if the recipient still delays collecting).
If those loopholes are in fact going away, how’s a savvy Social Security pensioner to up his or her benefits? Delay collecting, said multiple Social Security experts. That is the number-one advice given. Collect at 66 - the so called Full Retirement Age, per Social Security - and you get 100% of your benefit. Sound good? Not really because every year you delay, the benefit goes up 8%. Collect at 70 and that means you collect 132% of the benefit.
Collect at 62 and the math is still worse. By the Social Security Administration’s count, the full benefit - for retirees born in the period 1943 to 1954 - is reduced 25%. A hypothetical $1,000 monthly pension at full retirement age shrinks to $750 when collected at 62. And if checks are delayed until age 70, the monthly amount grows to $1,320.
The money question: why do under 2% of us delay collecting until age 70? And why do a full quarter of us start collecting at 62? Experts said early collectors either need the cashflow - no argument with that - or they believe their longevity suggests they won’t live that long. So they might as well collect now.
Both arguments are good, said Social Security experts who preach a policy of making informed decisions about Social Security. Do what you do with knowledge and most experts will give their blessing.
Are more changes expected with Social Security? Very probably, suggested experts, especially as ever more Baby Boomers start collecting. Said Laurie Samay, certified financial planner with Palisades Hudson Financial Group in Scarsdale, N.Y.: “Depending on your age, Social Security may look quite different by the time you approach retirement. The only guarantee is that it is unlikely to become simpler anytime soon.”
This article is commentary by an independent contributor. At the time of publication, the author held TK positions in the stocks mentioned.