Social Security Benefits ‘Restricted Application’

Don’t confuse “Restricted Application” with the “Claim and Suspend” strategy. Many people confuse the two, according to an article appearing in Forbes titled “Put Thousands In Your Pocket By Taking Advantage Of the Social Security ‘Restricted Application’.” One thing these tactics do have in common: you’ll need to be at your Full Retirement Age, or FRA, to use them.

The use of the ‘Claim and Suspend” strategy, ended on April 30, 2016. You would have needed to have been born before May 1, 1950. This let a person have Spouse #1 claim their benefit and then immediately suspend that benefit, allowing it to grow by 32% using delayed retirement credits. That allowed Spouse #2 to apply for and receive Spousal Benefits. In this case, Spouse #1 was not receiving a monthly benefit and Spouse #2 was.

However, that’s history. Let’s examine what you might be able to do: the ‘Restricted Application.’

To use this strategy, you need to have been born before Jan. 2, 1954 and have reached FRA. The restricted application is similar to claim and suspend, with one big difference: Spouse #1 needs to be receiving their Social Security benefit, in order for Spouse #2 to collect a spousal benefit. As of this writing, for one spouse to receive a spousal benefit, the other spouse must be receiving their benefit. Both spouses cannot receive spousal benefits at the same time.

Here’s what the Social Security Program Operations Manual says:

When a claimant is eligible for more than one benefit at the time of filing, he or she may, for any reason, choose to limit or restrict the scope of the application to exclude a class of benefits unless there is an exception. The reason may be to receive higher current benefits or to maximize the amount of benefits over a period-of-time, including the effect of delayed retirement credits (DRC). For additional information on DRCs, see RS 00615.690.

Using the restricted application works best, if the lower earning spouse claims their Social Security benefits, when the higher earning spouse reaches their FRA.

Here’s an example:

The husband’s primary benefit is $2,650 and his birthday is June 15, 1953.

The wife’s primary benefit is $1,000 and her birthday is June 15, 1955.

Because he was born before January 2, 1954, he can use the restricted application, when he reaches full retirement age. She can never use the restricted application because she was born after that date.

She begins taking her own benefits based on her earnings record at age 64, when he reaches his FRA. She only gets $855, because she is filing before her FRA.

He then files a restricted application for spousal benefits only in the amount of $500 in June 2019, when he is at his FRA of 66 years of age. He gets one half of her FRA benefit.

He then switches to his own benefit based on his earnings record in the amount of $3,498 in June 2023 at age 70. His benefit is 32% higher, because of earning delayed retirement credits.

She adds $325 in spousal benefits to her own benefit of $855, for a total of $1,180 in June 2023, when she is 68.

Now that he has filed for his own worker benefit, she can file for her spousal benefit. When he dies in June 2038, she switches to survivor benefits for $3,498, which is the amount he was receiving when he passed away. Her benefit of $1,180 goes away.

This strategy does three things:

  • Maximizes the higher earner’s benefit,
  • Coordinates benefits between the spouses, and
  • Maximizes the survivor benefits.

It takes advance planning and attention to detail, but this strategy could have a big difference in the total benefits that the couple receives. Is it worth doing the math? Definitely!

Reference: Forbes (Jan. 21, 2019) “Put Thousands In Your Pocket By Taking Advantage Of the Social Security ‘Restricted Application’”

 

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What Should I Be Doing 10 Years Before Retirement?

Investopedia’s recent article, “5 Things to Do 10 Years from Retirement,” explains that there’s a red zone both in football and retirement planning. In many instances, that zone is where the game is won or lost. In football, the red zone is 20 yards from the goal line. For retirement, it’s 10 years from your target retirement date. As you move towards your goal, you may need to “huddle up” and look at your game plan.

  1. Figure Out What Retirement Means to You. Before you start making financial plans, be clear on what retirement means to you. It may mean working 40 hours instead of 60 or never working another day for the rest of your life. Whatever you like, it’s important to have some idea of what you want to do every day. From there, you can start to shape a financial plan to support your retirement vision.
  2. Determine How Much Money You’ll Spend Every Month. Once you’ve defined what your retirement will look like, you can begin planning for it financially. First, determine how much you’ll be spending every month on your retirement budget. Many pre-retirees just don’t know how much they need to live on a monthly basis. An accurate retirement plan will be based on your monthly household expenses.
  3. Examine Your Sources of Income in Retirement. While looking at your spending, be aware of all the types of income you’ll have during retirement, such as Social Security, a pension, a 401(k) or an IRA. There are choices that will have to be made, if you have a pension. The timing for collecting Social Security payments is also important.
  4. Rework Your Investment Strategy. The way you’ve been investing for the past 30 years, is not how you should invest for the next 30. Younger people focus on accumulation, but when you’re in or nearing retirement, you need to concentrate on income and keeping pace with inflation. Diversification is important, but what’s more powerful than diversification is asset allocation.
  5. Consider Hiring a Financial Professional. You can do-it-yourself, since there are many inexpensive funds and research information available. However, there’s much more that goes into creating a comprehensive retirement plan than just investments. Your retirement plan should address your need for income, estate planning, survivorship planning, insurance needs, business continuation, inflation, and other points.

As in football, the team that wins the game, is often the team who played well in the red zone. Don’t fumble the ball at the goal line or settle for a field goal. Score a touchdown with smart retirement planning.

Reference: Investopedia (September 7, 2018) “5 Things to Do 10 Years from Retirement”

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