For many of our clients approaching retirement age, determining expected income in retirement from pensions, investments, RMDs retirement plans (and whether the plans are 401Ks, IRAs or other qualified accounts) is an important calculation.
Prominent in this calculation is the potential income from Social Security. Most potential retirees know that social security is available at 62 at around 80% of “full retirement benefits,” at 65 (which is considered “full retirement age”) or at 70, if collection of benefits is delayed. For those delaying receipt of their benefits until after age 65, each year of delay adds between 6 -8% (up to 32%) to the benefit available.
For those focused on their Social Security benefit, there have historically been some strategies maximizing the benefit. Perhaps one of the most interesting was a strategy available to married couples known as the “file and suspend” and “restricted application for spousal benefits.” This technique allowed the married applicant to file for benefits (usually at 62) but suspend taking the benefits. This delay allowed the benefits to continue accruing at the additional 6% per year. Meanwhile, the applicant’s spouse may claim the “spousal benefit” without filing for his or her own benefit. By suspending receipt of the benefit, the retiree is still accumulating the higher benefits.
However, it is not important to understand this strategy if you will turn 62 after 2015. The Social Security Administration has caught on to the “file-and-suspend” technique and has spearheaded legislation which removes this file-and-suspend strategy for anyone who is not 62 by the end of 2015.
Even without this new regulation, your Social Security benefits and the timing for taking your available benefits should still be evaluated based on your age, health, work and employment plans for both you and your spouse, and your overall investments strategies. Talk to your estate planning attorney, financial advisor and CPA about this as retirement age approaches.
Erin Thrash and Leigh Banaszak