But it wasn’t supposed to work that way anyway.
Call it the law of unintended consequences, and Washington is famous for unintended consequences.
Back in 2000, President Clinton & Congress changed Social security law to allow people of full retirement age to continue working and earning money after they reached full retirement age. It was named the “Senior Citizens’ Freedom to Work Act”. Whereby before that date, if someone worked and collected Social security payments at the same time, their social security check would be reduced by a certain amount, depending on their income up until Age 70, when it would no longer apply. With this 2000 law, Senior Citizens were now still able to work and earn as much as they wanted while collecting their full retirement age social security benefits.
The unintended consequence: It opened up several new strategies to optimize benefits, especially between spouses, and cost the program billions.
One of the most popular strategies was for a higher earning and currently employed wife to file for her benefit when she reached full retirement age, thus allowing the lower earning husband to collect half of the wife’s benefit amount. The wife would then immediately suspend payments for herself, allowing her benefit to keep increasing 8% per year until age 70. Then At age 70 when both collect, the husband and wife team’s payments were generally much higher. This strategy worked well when one spouse made significantly less career earnings than the other.
Another popular strategy that used a similar tactic was employed when both spouses earned nearly equal income. Both spouses would file and suspend benefits, then the husband, for instance, would collect half the wife’s Full retirement for several years, all the while his benefits would continue to increase to age 70 while he collected (The wife’s would increase as well). Then at age 70, both husband and wife would claim their own benefit, which would also have a much higher payout.
Needless to say, this was costing billions of dollars that was not intended. So now it’s been fixed.
It is important to note, if you are already doing these strategies, you are “grand fathered/ grand mothered” in. For those who did not attain age 62 in 2015, these rules go away in April 2016.
There still is a lot of planning to be done around Social Security claiming. There look to be some file and suspend strategies that will work in limited circumstances, such as where a worker can collect early at age 62, and later suspend to receive more credits later. For example, in limited circumstances where the worker has a young dependent early on and wants to collect benefits for them and their dependent, but won’t need to collect later; they can suspend and grow their benefits again until age 70.
In the end it’s always a good idea to talk to your advisor about Social security benefit planning. Let them help you to do the math on when to take benefits, and whether taking early retirement really is your best option.
