Social Security: Five Facts You Need to Know

Social Security can be complicated and, as a result, many individuals don’t have a full understanding of the choices they may have. Here are five facts about Social Security that are important to keep in mind:

1. Social Security Is a Critical Source of Retirement Income

Some have the perception that Social Security is of secondary or even tertiary importance in retirement. But according to a report by the Social Security Administration, Social Security replaces about 40% of an average wage earner’s income after retiring.¹

Keep in mind that Social Security makes annual cost of living adjustments based on the Consumer Price Index and, under current laws, pays income for life and the life of your spouse.²

2. You Have a Choice for When You Take Social Security

You have considerable flexibility for when you can begin receiving your benefits.

As the accompanying illustration shows, the full retirement age, i.e., the age at which full retirement benefits are payable, depends upon when you were born.

Age for Receiving Full Social Security Retirement Benefits

Year of Birth Full Retirement Age
1943-1954 66
1955 66 and 2 months
1956 66 and 4 months
1957 66 and 6 months
1958 66 and 8 months
1959 66 and 10 months
1960 or later 67

(Important Note: Though full retirement age varies, you also may want to consider applying for Medicare benefits three months before your 65th birthday; if you wait longer, your Medicare medical insurance and prescription drug coverage could cost you more.)

You may begin receiving benefits as early as age 62, though your benefits will be reduced at a rate of about one-half of 1% for each month you begin taking Social Security before your full retirement age.³

You may choose to delay receiving benefits until after attaining your full retirement age, in which case, your benefits are scheduled to increase by 8% annually. This increase under current law will be automatically added each month from the moment you reach full retirement age until you start taking benefits or reach age 70—the age at which these delayed retirement credits stop accruing. Plus, your benefit also will increase by any cost of living adjustments applied to benefit payment levels during that time.⁴

If you plan on continuing to work, you may still receive the full benefit for which you are eligible. Indeed, working beyond full retirement age can increase your benefits. However, your benefits will be reduced if your earnings exceed certain limits. If you work and start receiving benefits before full retirement age, your benefits will be reduced by $1 for every $2 in earnings above the prevailing annual limit ($15,720 in 2016).⁵

If you continue to work during the year in which you attain full retirement age, your benefits will be reduced by $1 for every $3 in earnings over a different annual limit ($41,880 in 2016) until the month you reach full retirement age.

Once you have attained full retirement age, you can keep working and your benefits under current law will not be reduced, regardless of how much you earn.

As you can see, the decision of when to begin taking Social Security is a critical one.

3. Social Security May Be Taxable

Depending on your income level, your Social Security benefit may be subject to taxation. The chart below illustrates how your combined income (adjusted gross income + your nontaxable interest + one-half of your Social Security benefit) can impact whether your Social Security retirement benefit is subject to taxation.

Will Your Social Security Benefits Be Subject to Federal Income Taxes?

50% of Benefit
Subject to Taxation
85% of Benefit
Subject to Taxation
Individual Filers Combined Income of
$25,000 to $34,000
Combined Income
Greater Than $34,000
Joint Filers Combined Income of
$32,000 to $44,000
Combined Income
Greater Than $44,000

This potential income tax exposure may have substantial implications for whether you choose to work in retirement, how your assets are invested, and the timing of withdrawals from other retirement accounts.

For instance, a withdrawal from a traditional IRA may lift your income beyond the thresholds described above, subjecting a higher proportion of your Social Security to income tax.⁶

The same is true of investment earnings in non-retirement savings. Retirees who have investment earnings in excess of their current spending needs may be subjecting their Social Security income to taxation. Shifting a portion of those assets to a tax-deferred instrument, such as an fixed annuity, may be one way to manage taxation on your Social Security benefit.⁷

4. Social Security Can Be a Family Benefit

When you start receiving Social Security, other family members may also be eligible for payments. A spouse (even if he or she did not have earned income) qualifies for benefits if he or she is age 62 or older, or at any age if he or she is caring for your child. (The child must be younger than 16 or disabled).

Benefits may also be paid to your unmarried children if they are younger than 18 or between 18 and 19 and enrolled in a secondary school as a full-time student, or if they are age 18 or older and severely disabled.

Each family member may be eligible for a monthly benefit that is up to half of your retirement (or disability) benefit amount. There is a family limit, which varies, but is generally between 150% to 180% of your retirement (or disability) benefit.⁸

Should you die, your family may be eligible for benefits based on your work record. Family members who qualify for benefits include:

  • A widow or widower
    • age 60 or older;
    • age 50 and older if disabled; or
    • any age if he or she is caring for your child who is younger than 16 or disabled and entitled to Social Security benefits on your record.
  • Unmarried children can receive benefits if they are:
    • under 18 years of age;
    • between 18 and 19 and are full time students in a secondary school; or
    • age 18 or older and severely disabled (the disability must have started before age 22).

Your survivors receive a percentage of your basic Social Security benefit—usually in the range of 75% to 100% for each member, though the limit paid to each family is about 150% to 180% of your benefit rate.

5. A Divorced Spouse May Be Eligible for Benefits

If you are divorced, you may qualify for Social Security benefits based on your ex-spouse’s work record. To be eligible for benefits, your ex-spouse must have reached the age at which he or she is eligible to begin receiving benefits (though he or she does not necessarily need to be receiving them). To qualify, you need to:

  • have been married to your ex-spouse for at least 10 years;
  • have been divorced two years or longer;
  • be at least 62 years old;
  • be unmarried; and
  • not be entitled to a higher Social Security benefit based on your own work history.

If your former spouse is deceased, you may still receive benefits as a surviving divorced spouse (irrespective of the age he or she died), assuming that your ex-spouse was entitled to Social Security benefits, your marriage was at least 10 years, you are at least 60 years old and you are not entitled to a higher benefit amount based on your own work history. If you remarry before the age of 60, you will lose the ability to receive a survivor benefit from your deceased ex-spouse.

If your former spouse is living, the maximum amount that you are eligible to receive is 50% of what your former spouse is due at full retirement age. To receive the maximum benefit, you will need to wait until you have reached your own full retirement age.⁹

Your benefits are unaffected should your former spouse elect to take Social Security before reaching full retirement age or if your ex-spouse starts a new family.

  1. Social Security Administration, September 2016
  2. Social Security Administration, September 2016
  3. Social Security Administration, September 2016
  4. Social Security Administration, September 2016
  5. Social Security Administration, September 2016
  6. Withdrawals from traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.
  7. The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits. Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contact. Withdrawals and income payments are taxed as ordinary income. If a withdrawal is made prior to age 59½, a 10% federal income tax penalty may apply (unless an exception applies).
  8. Social Security Administration, September 2016
  9. Social Security Administration, September 2016

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

Social Security: The Elephant in the Room

For most Americans, Social Security has represented nothing more than some unavoidable payroll deduction with the positively cryptic initials of “FICA” and “OASDI” (Federal Insurance Contributions Act and Old Age, Survivors and Disability Insurance). It hinted at a future that seemed both intangible and faraway.Yet, a new generation has begun drawing on the promise that was made with those payments.

As the wave of Baby Boomers enters retirement, questions and concerns abound. Is Social Security financially healthy? How much will my income benefit be? How do I maximize benefits for me and my spouse? When should I begin taking Social Security?

Questions & Elephants

Answering these questions may help you derive the most from your Social Security benefit, and potentially enhance your financial security in retirement. Before you can answer these questions, you have to acknowledge the elephant in the room.

The Social Security system has undergone periodic scares over the years that have inevitably led many people to wonder if Social Security will remain financially sound enough to pay the benefits they are owed.

Reasonable Concern

Social Security was created in 1935 during Franklin D. Roosevelt’s first term.¹ It was designed to provide income to older Americans who had little to no means of support. The country was mired in an economic downturn and the need for such support was acute.

Since its creation, there have been three basic developments that have led to the financial challenges Social Security faces today.

  1. The number of workers paying into the system (which supports current benefit payments) has fallen from over 8 workers for every retiree in 1955, to 2.8 workers in 2015. That ratio is expected to fall to 2.3 by 2030.²
  2. A program that began as a dedicated retirement benefit later morphed into an income support for disabled workers and surviving family members. These added obligations were not always matched with the necessary payroll deduction levels to financially support them.
  3. Retirees are living longer. As might be expected, the march of medical technology and our understanding of healthy behaviors have led to a longer retirement span, potentially placing a greater strain on resources.

Beginning in 2010, Social Security tax and other non-interest income no longer fully covered the program’s cost. According to the Social Security Trustees 2016 annual report, this pattern is expected to continue for the next 75 years; the report projects that the trust fund may be exhausted by 2034, absent any changes. Should that happen, it is estimated that current deductions may only be able to pay about 75% of promised income benefits.³

Social Security’s financial crisis is real, but the prospect of its failure seems remote. There are a number of ways to stabilize the Social Security system, including, but not limited to:

Increase Payroll Taxes: An increase in payroll taxes, depending on the size, could add years of life to the trust fund.

Raise the Retirement Age: This has already been done in past reforms and would save money by paying benefits to future recipients at a later age.

Tax Benefits of Higher Earners: By taxing Social Security income for retirees in higher tax brackets, the tax revenue could be used to lengthen the life of the trust fund.

Modify Inflation Adjustments: Rather than raise benefits in line with the Consumer Price Index (CPI), policymakers might elect to tie future benefit increases to the “chained CPI,” which assumes that individuals move to cheaper alternatives in the face of rising costs. Using the “chained CPI” may make cost of living adjustments less expensive.

Reform is expected to be difficult since it may involve tough choices—something from which many policymakers often retreat. However, history has shown that political leaders tend to act when the consequences of inaction exceed those that would come from taking action.

  1. Social Security Administration, 2015
  2. Social Security Administration, 2016 Annual Report
  3. Social Security Administration, 2016 Annual Report

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

Choices for Your 401(k) at a Former Employer

One of the common threads of a mobile workforce is that many individuals who leave their job are faced with a decision about what to do with their 401(k) account.¹

Individuals have three basic choices with the 401(k) account they accrued at a previous employer.

Choice 1: Leave It with Your Previous Employer

You may choose to do nothing and leave your account in your previous employer’s 401(k) plan. However, if your account balance is under a certain amount, be aware that your ex-employer may elect to distribute the funds to you.

While inertia is one of the primary reasons for not moving a 401(k), there may be reasons to keep it there—such as investments that are low cost or have limited availability outside of the plan.Other reasons are to maintain certain creditor protections that are unique to qualified retirement plans, or to retain the ability to borrow from it, if the plan allows for such loans to ex-employees.²

The primary downside is that individuals can become disconnected from the old account and pay less attention to the ongoing management of its investments.

Choice 2: Transfer to Your New Employer’s 401(k) Plan

Provided your current employer’s 401(k) accepts the transfer of assets from a pre-existing 401(k), you may want to consider moving these assets to your new plan.

The primary benefits to transferring are the convenience of consolidating your assets, retaining their strong creditor protections, and keeping them accessible via the plan’s loan feature.

Provided their new plan has a competitive investment menu, many individuals prefer to transfer their account and make a full break with their former employer.

Choice 3: Roll Over Assets to a Traditional Individual Retirement Account (IRA)

The last choice is to roll assets over into a new or existing traditional IRA.³ A traditional IRA may provide a wider range of investment choices than what may exist in your new 401(k) plan.

The drawback to this approach may be less creditor protection and the loss of access to these funds via a 401(k) loan feature.

Remember, don’t feel rushed into making a decision. You have time to consider your choices and may want to seek professional guidance to answer any questions you may have.

  1. Distributions from 401(k) plans and most other employer-sponsored retirement plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.
  2. A 401(k) loan not paid is deemed a distribution, subject to income taxes and a 10% tax penalty if the account owner is under 59½. If the account owner switches jobs or gets laid off, the 401(k) loan becomes immediately due. If the account owner does not have the cash to pay the balance, it will have tax consequences.
  3. Withdrawals from traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

IRA Withdrawals that Escape the 10% Tax Penalty

The reason withdrawals from an Individual Retirement Account (IRA) prior to age 59½ are generally subject to a 10% tax penalty is that policymakers wanted to create a disincentive to use these savings for anything other than retirement.¹

Yet, policymakers also recognize that life can present more pressing circumstances that require access to these savings. In appreciation of this, the list of withdrawals that may be taken from an IRA without incurring a 10% early withdrawal penalty has grown over the years.

Penalty-Free Withdrawals

Outlined below are the circumstances under which individuals may withdraw from an IRA prior to age 59½, without a tax penalty. Ordinary income tax, however, generally is due on such distributions.

  1. Death — If you die prior to age 59½, the beneficiary(ies) of your IRA may withdraw the assets without penalty. However, if your beneficiary decides to roll it over into his or her IRA, he or she will forfeit this exception.²
  2. Disability — Disability is defined as being unable to engage in any gainful employment because of a mental or physical disability, as determined by a physician.³
  3. Substantially Equal Periodic Payments — You are permitted to take a series of substantially equal periodic payments and avoid the tax penalty, provided they continue until you turn 59½ or for five years, whichever is later. The calculation of such payments is complicated, and individuals should consider speaking with a qualified tax professional.⁴
  4. Home Purchase — You may take up to $10,000 toward the purchase of your first home. (According to the Internal Revenue Service, you also qualify if you have not owned a home in the last two years). This is a lifetime limit.
  5. Un-reimbursed Medical Expenses — This exception covers medical expenses in excess of 7.5% of your adjusted gross income.
  6. Medical Insurance — This permits the unemployed to pay for medical insurance if they meet specific criteria.
  7. Higher Education Expenses — Funds may be used to cover higher education expenses for you, your spouse, children or grandchildren. Only certain institutions and associated expenses are permitted.
  8. IRS Levy — Funds may be used to pay an IRS levy.
  9. Active Duty Call-Up — Funds may be used by reservists called up after 9/11/01, and whose withdrawals meet the definition of qualified reservist distributions.
  1. With an IRA, once you reach age 70½, generally you are obligated to begin taking required minimum distributions.
  2. Your required minimum distribution (RMD) may be based on your age or the deceased’s age at the time of death. Penalties may occur for missed RMDs. Most are required to begin by December 31 of the year following the date of death. Any RMDs due for the original owner must be taken by their deadlines to avoid penalties. You will pay taxes on any distributions you take. Consider speaking with a financial professional who can help you evaluate the potential impact an inheritance might have on your overall tax situations.
  3. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Federal and state laws and regulations are subject to change, which may have an impact on after-tax investment returns. Please consult legal or tax professionals for specific information regarding your individual situation.
  4. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

Three Key Questions to Answer Before Taking Social Security

Social Security is a critical component of the retirement financial strategy for many Americans, so before you begin taking it, you should consider three important questions. The answers may affect whether you make the most of this retirement income source.

  1. When to Start? You have the choice of 1) starting benefits at age 62, 2) claiming them at your full retirement age, or 3) delaying payments until age 70. If you claim early, you can expect to receive an amount lower than what you would have earned at full retirement. If you wait until age 70, you can expect to receive an even higher benefit than if you had begun receiving payments at your full retirement age. The decision of when to begin taking benefits may hinge on whether you need the income now or can wait, and whether you think your lifespan will be shorter or longer than the average American.
  2. Should I Continue to Work? Work provides income, personal satisfaction, and may increase your Social Security benefits. However, if you begin taking benefits prior to your full retirement age and continue to work, your benefits will be reduced by $1 for every $2 in earnings above the prevailing annual limit ($15,720 in 2016).¹ If you work during the year in which you attain full retirement age, your benefits will be reduced by $1 for every $3 in earnings over a different annual limit ($41,880 in 2016) until the month you reach full retirement age. After you attain your full retirement age, earned income no longer reduces benefit payments.²
  3. How Can I Maximize My Benefit? The easiest way to maximize your monthly Social Security benefit is to simply wait until you turn age 70 before receiving payments.
  1. Social Security Administration, 2016
  2. Social Security Administration, 2016

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG  Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

Eight Mistakes That Can Upend Your Retirement

Pursuing your retirement dreams is challenging enough without making some common, and very avoidable, mistakes. Here are eight big mistakes to steer clear of, if possible.

  1. No Strategy: Yes, the biggest mistake is having no strategy at all. Without a strategy, you may have no goals, leaving you no way of knowing how you’ll get there—and if you’ve even arrived. Creating a strategy may increase your potential for success, both before and after retirement.
  2. Frequent Trading: Chasing “hot” investments often leads to despair. Create an asset allocation strategy that is properly diversified to reflect your objectives, risk tolerance, and time horizon; then make adjustments based on changes in your personal situation, not due to market ups and downs.¹
  3. Not Maximizing Tax-Deferred Savings: Workers have tax-advantaged ways to save for retirement. Not participating in your employer’s 401(k) may be a mistake, especially when you’re passing up free money in the form of employer-matching contributions.²
  4. Prioritizing College Funding over Retirement: Your kids’ college education is important, but you may not want to sacrifice your retirement for it. Remember, you can get loans and grants for college, but you can’t for your retirement.
  5. Overlooking Healthcare Costs: Extended care may be an expense that can undermine your financial strategy for retirement if you don’t prepare for it.
  6. Not Adjusting Your Investment Approach Well Before Retirement: The last thing your retirement portfolio can afford is a sharp fall in stock prices and a sustained bear market at the moment you’re ready to stop working. Consider adjusting your asset allocation in advance of tapping your savings so you’re not selling stocks when prices are depressed.³
  7. Retiring with Too Much Debt: If too much debt is bad when you’re making money, it can be deadly when you’re living in retirement. Consider managing or reducing your debt level before you retire.
  8. It’s Not Only About Money: Above all, a rewarding retirement requires good health, so maintain a healthy diet, exercise regularly, stay socially involved, and remain intellectually active.
  1. The return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost. Asset allocation and diversification are approaches to help manage investment risk. Asset allocation and diversification do not guarantee against investment loss. Past performance does not guarantee future results.
  2. Distributions from 401(k) plans and most other employer-sponsored retirement plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.
  3. The return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost. Asset allocation is an approach to help manage investment risk. Asset allocation does not guarantee against investment loss. Past performance does not guarantee future results.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

Does Your Portfolio Fit Your Retirement Lifestyle?

Most portfolios are constructed based on an individual’s investment objective, risk tolerance, and time horizon.

Using these inputs and sophisticated portfolio-optimization calculations, most investors can feel confident that they own a well-diversified portfolio, appropriately positioned to pursue their long-term goals.¹

However, as a retiree, how you choose to live in retirement may be an additional factor to consider when building your portfolio.
Starting a Business?

Using retirement funds to start a business entails significant risk. If you choose this path, you may want to consider reducing the risk level of your investment portfolio to help compensate for the risk you’re assuming with a new business venture.

Since a new business is unlikely to generate income right away, you may want to construct your portfolio with an income orientation in order to provide you with current income until the business can begin turning a profit.
Traveling for Extended Periods of Time?

There are a number of good reasons to consider using a professional money manager for your retirement savings. Add a new one. If you plan on extended travel that may keep you disconnected from current events (even modern communication), investing in a portfolio of individual securities that requires constant attention may not be an ideal approach.² For this lifestyle, professional management may suit your retirement best.
Rethink Retirement Income?

Market volatility can undermine your retirement-income strategy. While it may come at the expense of some opportunity cost, there are products and strategies that may protect you from drawing down on savings when your portfolio’s value is falling—a major cause of failed income approaches.

Diversification and portfolio optimization calculations are approaches to help manage investment risk. They do not eliminate the risk of loss if security prices decline.
Keep in mind that the return and principal value of security prices will fluctuate as market conditions change. And securities, when sold, may be worth more or less than their original cost. Past performance does not guarantee future results. Individuals cannot invest directly in an index.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

Social Security: Two Benefit Strategies Eliminated

With the passage of the Bipartisan Budget Act of 2015, two strategies to potentially maximize Social Security benefit payments were eliminated.

An Overview

Prior to the budget’s passage, married couples had two strategies to help maximize their Social Security benefits: “file-and-suspend” and “restricted applications.”¹

Under file-and-suspend, the higher-earning spouse filed for benefits and then suspended them, allowing the lower-earning spouse to claim a spousal benefit. This also let the higher-earning spouse accrue delayed retirement credits. Upon attaining age 70, the couple then could switch to each taking their own individual benefit to receive the highest possible amount.

Restricted Application

A restricted application allowed an individual, upon attaining full retirement age, to file only for a spousal benefit, based on his or her spouse’s work record, delaying personal benefits until age 70. Upon reaching age 70, the individual would then convert to his or her own personal benefit.

Married couples also could combine the above strategies with one spouse filing and suspending a worker benefit, while the other spouse filed a restricted application to receive the spousal benefit only.

Divorced Recipients

These strategies could be used by divorced recipients, too. A divorced spouse was permitted to file a restricted application for a spousal benefit at full retirement age, as long as the former spouse was 62 or older. At age 70, the divorced spouse then switched over to his or her own worker benefit, assuming it was a higher amount.

The Policy Behind the Elimination

The elimination of file-and-suspend claims became effective on May 1, 2016. It prohibited restricted applications for anyone who had not reached age 62 by the end of 2015. Since file-and-suspend was only available to those who had reached full retirement age, it remained available to individuals who were age 66 by April 30, 2016. (Couples who had already executed such claims are unaffected by the new law.)²

The reason that Congress acted, and the President signed into law this change, was to save money and close perceived loopholes in the Social Security program.

Overall savings will be small compared to the larger financial challenges that Social Security faces. These changes will save about 0.02 percent of the taxable wages and self-employment income subject to Social Security taxes over the next 75 years, according to the Social Security Administration — a fraction of the program’s long-term deficit of 2.65 percent of taxable payroll.3 ³

According to one study, these changes will impact just 0.1 percent of all Social Security participants.⁴

Strategy & Choices

There was one other change not yet widely discussed that may have implications for you.

For someone who exercised a file-and-suspend strategy, the rules provided the ability to receive a retroactive lump sum payment if an individual changed his or her mind and lifted the suspension. (They did lose any bump up in payment amount that came with delaying benefit payments, however.) This flexibility is also being eliminated under the budget act.

This ability to lift the suspension was a particularly important planning strategy because it allowed an individual who may have come down with a life-threatening illness or undergone a change in financial status to retroactively go back to their original filing date and receive a lump sum for the benefit amount not paid during the suspension period.

Keep in mind that Social Security has undergone a number of substantive changes since its inception. While the elimination of these strategies may be disappointing, these changes do not undercut the central promise of this critical social contract. In fact, they were implemented to strengthen it.

  1. Social Security Administration, 2016.
  2. Social Security Administration, 2016.
  3. The New York Times, October 30, 2015.
  4. The New York Times, October 30, 2015.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.