Time is running out for some popular Social Security claiming strategies President Barack Obama has called unintended loopholes.
One tactic disappears altogether at the end of the month, and another will only be available to people in a specific age range for a few more years. Either way, if you are lucky enough to take advantage of them, the time to act is now.
“Don’t mess around” and put it off, said Eleanor Blayney, consumer advocate for the Certified Financial Planner Board of Standards, because the rules are so complicated. Even financial advisors are having a hard time figuring it all out, she said.
The first disappearing strategy is known as “file and suspend” and is generally used by married couples, or people who were married for at least a decade and then divorced. (Those people are allowed to claim on an ex-spouse’s benefits.)
Under current rules, the older spouse can claim benefits at age 66, the current full retirement age, and immediately suspend them. That allows the younger spouse (as long as she or he is above age 62) to claim spousal benefits and defer his or her own claim. When the older spouse reaches 70, he or she will be able to start claiming benefits that will have grown to the maximum amount, and the younger spouse can collect either his or her own benefit or a spousal benefit, whichever is larger.
Because of changes to the law in late 2015, people will no longer be able to use the file and suspend approach for claims filed after April 29. In the future, anyone who files for benefits and suspends them will also effectively suspend related claims by a spouse or children.
The upshot: Eligible couples need to get busy if they want to use this approach.
The imminent end of file and suspend also means another benefit from delaying claims is going away.
For the next few weeks, if you file for benefits at age 66 or above and then suspend, but decide two or three years later that you wish you had started taking them, you can get a lump sum payment of the benefits you deferred. But after April 29, anyone who has filed for benefits and suspended them, and then decides to start them up, will not receive the retroactive payment.
A third claiming strategy, known as “claim now, claim more later” or a restricted application, is also on its way out, but more slowly.
This technique is typically most effective when the lower-earning spouse files for benefits between age 62 and 66. When the higher-earning spouse reaches age 66, he or she can then claim spousal benefits equal to half of the claiming spouse’s payment. At age 70, the high earner can switch and file his or her own claim for benefits, which will have reached their maximum level. And the lower earning spouse can either continue receiving his or her own benefits or switch to spousal benefits, whichever is larger.
People under age 62 are no longer allowed to use this approach. But if you turned 62 before Jan. 2, 2016, this is still an option for you.
With all these strategies disappearing, what’s a senior to do?
In general, it is a good idea to delay claiming benefits, said Blayney. That is because your benefit increases every year you do not take it, up to age 70. In fact, many advisors point to delaying Social Security as an exceptionally smart investment, because waiting nets an annual increase of roughly 8 percent.
“If it’s highly likely that you are going to live past 81, you are better off waiting,” said Kate Rooney, a CPA and a principal with Edelstein & Company.
Women in particular need to think carefully about their later years, since the average life expectancy of a 65-year-old woman today is 86.6, according to the Social Security Administration.
Waiting may create cash flow challenges for people in their 60s, which may have been mitigated under the disappearing claiming moves. If you can afford to hold off on taking Social Security, however, that may be the best strategy still on the books.