As with anything the government is involved in, Social Security is complex and confusing, surrounded by red tape and bureaucracy. There are over 70,000 scenarios for claiming these retirement benefits, and the new sweeping changes to its regulations don’t make it any simpler.
It’s now more important than ever for you to make the best choices for your circumstances in order to maximize the amount of cumulative lifetime benefits you receive. It’s not just about making good decisions, it’s about making the best decisions. Here’s what you need to know before claiming Social Security.
Relying on Social Security
Many Americans worry that Social Security won’t exist anymore by the time they retire. But the program remains strong and will be able to pay full benefits for the foreseeable future. It remains well-funded, with currently nearly $2.79 trillion in its trust fund, and the total annual income is actually expected to exceed the program’s obligations through the next three years.
When You Should Claim
Knowing how much you’ll receive from Social Security retirement benefits is critically important. Understanding your expected monthly benefits can help you plan for your retirement and ensure that you get enough retirement income to meet your lifestyle. Basic retirement spending for the average retiree is a total of $33,057, plus taxes, according to the US Bureau of Statistics. This includes shelter and utilities, transportation, clothing, healthcare, and food.
The benefits are calculated based on four factors: how much you’ve earned over your lifetime, what age you will apply for your benefits, your marital status, and how well you use strategies to maximize your benefits. The minimum you’ll receive at age 62 is $1000 per month; you’ll receive at least one third more if you delay benefits until 66, and at least three quarters more if you wait to claim them at 70.
When you choose to claim your benefits will depend on many factors, such as your need for income, your desired standard of living, your survivor needs, your plans to continue working, your life expectancy, your total and liquid assets, your age, and your marital status. It’s important to have a retirement strategy that takes all of these factors into account.
New Legislation in 2015
Americans took advantage of two specific pieces of legislature that allowed them to maximize their Social Security benefits. But recent changes by the Bipartisan Budget Act of 2015 created significant changes.
In particular, the “file and suspend” rule allowed one spouse to file for, but immediately suspend, benefits, allowing the other spouse to claim spousal benefits. With this approach, the suspended benefits would then continue to grow delayed retirement credit. However, due to changes to the file and suspend rule, no spouse or family member benefit will now be paid from benefits in suspension. Those already receiving benefit after using the file and suspend strategy will be grandfathered in, however, and thus, leaving their benefits unchanged.
In addition, Americans who reach age 62 in 2016 or later will no longer be able to file a restriction application, which allowed a spouse to claim only the spousal benefit beginning at full retirement age and then later switch to his or her own retirement after the accruement of delayed retirement credits. This change also affects those looking to collect a divorced spouse benefit while accruing their own delayed retirement credits—this option will no longer be available either. Those who reached age 62 in 2015 or earlier will still be able to use the restricted application strategy, however.
Unfortunately, removing these complicated Social Security strategies for maximizing benefits doesn’t make the process any simpler. Rather, it makes it more complicated. Those who planned to use these methods will need to reconsider their options and look into new benefits claiming approaches.
Engaging a Social Security expert or retirement planning advisor can help choose claiming strategies that will allow you to maximize your benefits.