Social Security Part 3 of 3
Posted on September 2, 2010 by bob in Financial
In June we looked at guidelines to help individuals decide when to file for Social Security (SS) retirement benefits. Last month’s article examined the situation of many couples when both spouses are entitled to benefits based on their own work history. This month we will quickly scan three more SS retirement ideas that might help you or someone you know.
1) Do-over
This applies to someone who started collecting benefits early (age 62-65) and are now 70. If this person had waited to start drawing benefits, the current monthly amount would be larger. If the retiree can repay the past benefits received, without interest, he/she can restart benefits now at the higher level for the current attained age as if early retirement benefits had not previously been paid. And, the repayment of past benefits to the SS Administration (SSA) is tax deductible.
Obviously, this do-over is not a good option for everyone, but there are cases where it could make sense. To pursue this idea you must complete SS Form 521. But, you should act quickly if you are interested; the SSA seems to view this option as an unfair loophole and they want Congress to close it.
2) File and Suspend
This can help some married couples, especially when only one spouse has a work history qualifying for benefits. Under this strategy the higher earning spouse files for retirement benefits at full retirement age (FRA), and on the same application requests a suspension of his/her benefits while continuing to work. (File and suspend is not available prior to FRA.) The lower earning spouse can then start collecting a spousal benefit based on the tax record of the higher earning spouse.
In the meantime, the monthly benefit of the still-working spouse continues to increase (at a rate of 8%/year) because he/she has postponed collecting benefits.
3) Divorced Spouse
If you are age 62 or older, were married to the same person for at least 10 years, are now divorced from that person and are not remarried, you may be entitled to SS retirement benefits based on the tax record of your former spouse. While married persons must wait until their spouse files for benefits before drawing a benefit based on the spouse’s tax record, divorced persons do not have to wait. But they must have been divorced for at least two years and the former spouse must qualify for retirement benefits, although he/she has not filed for them yet.
In addition, if your former spouse dies, you could draw a benefit starting as early as age 60 (or age 50 if you are disabled). Remarriage by the person whose tax record is the basis for benefits will not affect the former spouse’s ability to draw benefits.
However, if the person wanting to draw benefits on the former spouse’s record remarries, it could eliminate the right to benefits.Social Security benefits rules are quite complex, using an array of special terms and abbreviations. One of the rules is that an application for benefits covers all benefits for which the claimant is eligible unless the application is specifically limited by the claimant.
Furthermore, the scope of the application cannot be restricted once it is “effectuated.” This means that you need to be careful in completing the application if you want to use a particular strategy. For this reason (and others) you should plan to spend some time talking to an advisor with the SSA before actually moving forward with a benefits application. Although SSA staff receive extensive training, you should realize that they are not all equally informed, experienced or knowledgeable about your choices. There are cases of people talking to multiple SSA representatives and getting conflicting information. Your best defense, as always, is to be well informed and investigate your options thoroughly before making a final decision.
Alan Wallace
Alan Wallace,CFA, ChFC, CLU is a Senior Financial Advisor for Ronald Blue & Co.’s Montgomery, Alabama office, 334-270-5960, alan.wallace@ronblue.com.
