The first major change in Social Security regulations since the 1983 overhaul of the system will affect married and divorced couples the most, according to Amanda Lott, partner and wealth advisor for RegentAtlantic, a Registered Investment Advisor in Morristown, N.J.
Two strategies that couples could use to maximize their benefits are being changed and potential clients need to know about some deadlines that are looming, Lott said during a webinar Wednesday.
“Now is the time to talk to a financial advisor [or for financial advisors to bring the subject up with clients] because decisions may need to be made by April 30,” she says.
The strategies, known as file and suspend and filing a restricted application, are being changed under the budget bill that has been signed into law by President Obama.
Under file and suspend, one member of a couple files for benefits but then suspends them. This allows the other spouse to begin collecting spousal benefits on the other person’s earnings record. The suspended benefits of the first spouse then continue to increase by about 8 percent a year until age 70.
Anyone who is retirement age and wants to take advantage of the file and suspend option has to do so by April 30, after which it will no longer be available for spouses to collect benefits. Anyone already collecting benefits using this strategy will not be affected, Lott says.
The second technique that is being eliminated is the restricted application. Under that rule, a person files a restricted application and collects spousal benefits while his or her own benefits continue to grow until age 70. Applicants will have to turn 62 before the end of this year in order to take advantage of this strategy. For anyone younger, it is being eliminated.
The two strategies are similar and are designed to let one spouse’s benefits continue to grow until age 70. Which technique was the best option depended on which spouse had the higher earnings record.
The two changes affect relatively few people and will not have much effect on the long-term solvency of Social Security, Lott says.
Christopher J. Cordaro, chief investment officer for RegentAtlantic, urges potential beneficiaries not to panic and start taking benefits now just because these changes are being made.