Financial Strategies

Changes To Social Security Will Take Away Some Key Planning Strategies That Couples Used To Boost Their Total Benefits

As part of recent negotiations between Congress and the White House over the budget, major changes to Social Security took away some key strategies that couples could use to boost their total benefits.

File and Suspend

Under this strategy, a higher earner at full retirement age (currently 66) would claim his benefit, enabling his lower-earning spouse to claim a spousal benefit (generally half of the higher earner’s benefit). He then immediately would suspend  his benefit so that he could earn 8% a year in delayed retirement credits until he reapplied up until age 70. In the meantime, his lower-earning spouse would collect monthly spousal benefits.

This new legislation will change the rules so that if someone suspends benefits, no one can collect based on his earnings record. That puts the kibosh on the spouse’s benefit.

That means that people who are getting benefits now under the strategy will continue to receive them, and those who want to try to maximize lifetime family benefits using this strategy will be able to for a while longer. You must be at least age 66 to use this tactic, and the window will probably close around May 1, 2016.

Another useful benefit of the file-and-suspend strategy is that it can greatly enhance the opportunity to collect benefits retroactively. Generally, Social Security will not pay more than six months’ of benefits retroactively. But, for those who file and suspend at age 66, any benefits due from that point on can be collected retroactively. Let’s say you file and suspend at 66 to earn delayed retirement credits, but become ill at 69. In that case, you could collect three full years worth of benefits retroactively if you were willing to forfeit the delayed retirement credits. This change in Social Security wipes out this option.

Restricting an Application

Under the current rules, if a beneficiary applies for benefits between ages 62 and full retirement age, that beneficiary will be paid the highest benefit he is entitled to — whether that is his own benefit or a spousal benefit. By waiting to full retirement age to claim, a beneficiary has had the opportunity to “restrict an application to spousal benefits only.” The reward: You could collect the spousal benefit while allowing your own benefit to grow thanks to 8%-a-year delayed retirement credits.

The new law will eliminate this option for most future beneficiaries.

There’s a caveat: Anyone age 62 or older at the end of 2015 is spared this clampdown. They will continue to have the option, at age 66, to restrict an application to spousal benefits only.

Since the file-and-suspend strategy is disappearing, this will work only if one spouse is actually receiving benefits. In that case, the other spouse could file a restricted application and collect spousal benefits at the same time he or she continues to rack up delayed retirement credits.

Couples in this situation will have to carefully weigh whether the lower earner should trigger his benefit in order for his spouse to claim a spousal benefit. Equal earner couples who both want to delay their own benefits may want to forgo bringing in income through a spousal benefit so that they can both boost their benefits. Couples who have unequal benefit amounts could find it advantageous to have the lower earner claim his benefit and have the higher earner file a restricted application for a spousal benefit.

The Good News

While these claiming strategies will disappear, some key Social Security rules that allow beneficiaries to boost benefits will remain. Beneficiaries will still be able to earn delayed retirement credits of 8% a year up to age 70 if they wait past full retirement age to claim benefits.

Also, a beneficiary will still be able to voluntarily suspend his or her own retirement benefit at age 66 or later, as a beneficiary can do now. That’s good news for someone who claims a reduced benefit early, but later wishes he hadn’t. Once he reaches full retirement age, he can choose to suspend his benefit to earn delayed retirement credits up to age 70 to erase most of the reduction from claiming early.

Asset Protection, Special Needs

Are You Disabled? Do you have a Disabled Child? If so, did you know an inheritance could cost you your benefits?

Special-Needs-Trusts-resized-600People with disabilities have special needs. Often the person on disability relies on certain governmental benefit programs such as Medicaid or Supplemental Security Income (SSI) for support and medical insurance. These programs have strict income and asset eligibility requirements. A well intended inheritance could in fact cause the person to lose important benefits. Proper planning can avoid these problems.

In our office, we often have parents of a disabled child tell us that they plan to disinherit the disabled child and leave their estate to another “well” child whom they expect will “look after” the disabled child. While these parents have good intentions, this can be a recipe for disaster. The healthy child has no obligation of support for the disabled child and could, without any legal consequences, keep all of the inheritance.

Parents will then tell us “my child would never do that.” But then we ask: what if your child gets divorced, dies, is disabled or is in a car accident? The money could then be lost through no fault of the well child. Are you willing to take this chance when there is a safer solution?

The safer solution is to create a Supplemental Needs Trust (SNT) for the benefit of the disabled child. In the parent’s Will or Trust the parent leaves the disabled child’s share to the SNT rather than directly to the disabled child. The funds in a properly crafted SNT should not disqualify the disabled child from benefits. The funds should then be available to help pay for services and “extras” not paid for by the programs. It creates a nest egg for the disabled child and should be protected from the claims of the Trustee’s creditors.

For example, Mom and Dad, in their Wills, leave $50,000 to a SNT created by them for the benefit of their child, Mary, who has Down’s Syndrome and is dependent upon Medicaid for her health insurance. The Trust assets should not disqualify Mary and can be used to pay for things such as extra medical care not covered by Medicaid, or a vacation, or clothing, or perhaps even a car! After Mary dies, any money remaining in the trust will be paid out to whomever Mom and Dad designated when they created the SNT.

A competent elder and special needs attorney can guide families through the difficult issues to create an estate plan that follows the family’s wishes, cares for the disabled individual properly and allows for continuation of government benefits. If you have a loved one dependent on government benefits for support, we encourage you to call our office because we have experience in special needs.

Financial Strategies

Social Security Super Secrets For Married Couples

imagesSocial Security may be broke and busted but it’s still writing checks; get all to which you are entitled before it changes. Here are three “super secrets” for married folks:

1. Pick which retirement you want; yours or your spouse’s. Obviously select the one that pays you the most. Often in a marriage there is a huge difference in wages. But even if the lower wage earner worked and has their own Social Security benefit, he or she may elect to receive an amount equal to half of their spouse’s instead. This is called your Spousal Benefit.

2. Double dip. A person who has reached full retirement age could elect to take his or her Spousal Benefit and delay taking their own Social Security benefit. Working or not, take your Spousal Benefit and delay your own and let it grow until you’re age 70. It doesn’t matter if your spouse is taking their Social Security benefit or not. Upon age 70, if your own benefit is higher than the Spousal Benefit you’ve been receiving, just swap and take your own. That’s more money for you now and potentially more money for you later.

3. Getting paid to wait. Typically, when one spouse hasn’t worked outside of the home as much as their mate, she won’t have much, if any, Social Security benefit and will default to receiving her payments when her higher earning spouse retires and decides to start taking Social Security payments. Do not wait. Once both spouses reach full retirement age, the higher earner (the husband in this example) should go ahead and file for his Social Security benefits. Then the lower earning wife files for her Spousal Benefit and, step three, the husband immediately suspends his Social Security benefit request. His benefit amount will continue to increase (by about 8 percent per year) and then when he reaches age 70, he can re-file to start taking his Social Security retirement benefit. This will give the wife free monthly money instead of thinking she must wait until hubby fully retires and takes a check from Social Security before she can…very cool idea.