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Window Closing to Maximize Your Social Security Benefit With Certain Strategies

Insights & Ideas Team •  November 2, 2015 | Enjoying Retirement, Your Finances

Married couples (including divorced individuals who meet certain criteria) who were hoping to take advantage of two popular strategies to maximize Social Security will soon have to reconsider tactics.

The Bipartisan Budget Act of 2015, signed by President Obama today, essentially eliminates the 'File and Suspend' and 'Claim Now, Claim More Later' provisions.

The change means people will no longer be able to take advantage of these strategies designed to increase their monthly benefit and enhance their overall financial plan.

But there is still a short window for people who were planning to take advantage of the strategies to move forward with their plans.

Here’s what’s changing and how it could impact you:

File and Suspend

Under the 'File and Suspend' strategy, a higher-earning spouse can file for Social Security at full retirement age (FRA) and delay receipt of benefits until age 70 to earn delayed retirement credits (DRCs). The lower-earning spouse can then file for spousal benefits. By filing and suspending, the higher-earning spouse’s benefit will continue to grow and earn delayed retirement credits while allowing the spouse to claim a spousal benefit. 

After April 30, 2016, spouses or other dependents will no longer be able to collect off the suspended benefit. This effectively eliminates any incentive to file and suspend.

The good news is that the change doesn’t go into effect immediately. You can still take advantage of 'File and Suspend' through April 30, 2016. So, if you’re eligible and are considering doing so, now is the time to take action.

Claim Now, Claim More Later

Social Security WhitepaperUnder the 'Claim Now, Claim More Later' strategy, the higher-earning spouse, at full retirement age, can file a restricted application for spousal benefits, allowing his or her own benefit to earn DRCs (assuming the lower-earning spouse has already filed). Once the higher-earning spouse reaches age 70, he or she switches to his or her own benefit, which has grown with delayed retirement credits.

Under the act, if a person is entitled to both a retirement benefit and a spousal benefit at the time of filing, he or she automatically receives the larger amount of the two regardless of his or her age when filing.

While this means an end to a strategy for many retirees, there is a window of opportunity for some. People who have turned 62 by the end of 2015 are still eligible to file a restricted application.

What Can You Do?

If you’re eligible to take advantage of these strategies before the changes take effect, you should consider doing so. You can learn more about Social Security claiming strategies by downloading Northwestern Mutual’s free guide "Social Security Simplified." If you’re not old enough to take advantage of these strategies before the window closes, you should consider how this may impact your income in retirement. You will still be able to delay taking Social Security and increase your benefit by 8 percent for each year you delay between your FRA and age 70. But without the income these strategies would have provided, you will want to adjust your plan to create lifelong income in retirement.

A financial professional can help you evaluate your whole financial picture and work with you to develop a plan to create steady income that will last throughout your retirement.

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