Social Security Insights: Can you still file a “Restricted Application?”
Choosing the wrong time to pull Social Security benefits can cost you hundreds of thousands of dollars over your lifetime. On November 2nd, 2015, new Social Security rules were signed into law that ended what was known as the “restricted application.” However, if you were born before January 2nd, 1954, you are grandfathered into the old rules, and you might be missing out on a lot of money.
What’s a restricted application?
If you are married, or were previously married for at least 10 years, you earned what is called a “spousal” benefit. At full retirement age (66 for those born before 1955) your spousal benefit is worth approximately half of the Social Security benefit your spouse earned. Unlike your regular Social Security benefit (based on your own earnings), the spousal benefit stops increasing at full retirement age, not at age 70.
What does the restricted application have to do with my spousal benefit?
The restricted benefit allows you to restrict your application to only taking your spousal benefit, while still enabling your own benefit to continue to grow. That means that, if you were born before January 2nd, 1954, you can get paid while you wait to take your own Social Security benefit at age 70.
When should I pull my Social Security benefits?
Unless you know exactly how long you are going to live, there’s no way to know the best time to start your Social Security benefit. However, as with any gamble, there are ways to tip the odds in your favor.
The break-even point for waiting to pull your own Social Security benefit is approximately the same date as your actuarial life expectancy. Since some people live beyond their life expectancy and some die sooner, about half of the people that wait will get more in total benefits by waiting and the other half will get less.
Let’s use the hypothetical example of a married couple, Alex and Andy:
|Alex born in 1953 and lives to 75||Andy born 1953 and lives to 90|
|Age||Alex Monthly Benefits||Age||Andy Monthly Benefits|
|Early (62)||$1,500||Early (62)||$1,800|
|FRA (66)||$2,000||FRA (66)||$2,400|
|Both Collect Age 62|| Both |
Collect at 70
| Restricted |
|Alex’s Spousal Benefits||$0||$0||$0||$0|
|Andy’s Spousal Benefits||$0||$0||$0||$48,000|
|Andy Survivor Benefits||$356,400||$432,000||$570,240||$570,240|
In this example, Alex only lives until 75 and Andy lives until 90. If they both wait until 70 to apply for Social Security, Alex’s lifetime Social Security income would only total $190,080. If Alex pulls at 62 the total income would be $252,000.
To get the most income out of this situation Alex would need to pull Social Security at 62, and Andy would file a restricted application at 66. Filing a restricted application allows Andy to get half of Alex’s income for 4 years while Andy’s benefit continues to grow. At 70, Andy re-files for regular Social Security benefits, which increases Andy’s income from $1,200 per month to $3,168. By waiting until 70, not only does Andy get a higher income later in life, they also ensure whoever lives longer has a larger benefit for the remainder of their combined lives (when one spouse dies, the surviving spouse keeps getting the larger of their two Social Security checks).
While this example highlights the benefit of a restricted application, it doesn’t always end up producing the best result. If they both live to 90, both die before 75, have ages further apart, or if only one of them has worked long enough to qualify for Social Security benefits, the best approach may be different. When planning for Social Security, you should also consider what is going on with investment markets. If the market is in a recession and your investments are down significantly, it might be better to take social security sooner and let your investment portfolio recover. Finally, if either spouse has a serious or terminal medical condition, planning around their more realistic (shorter) life expectancy is important.
Still need help?
Everyone’s situation is different, and we can’t cover every scenario here. We also don’t want you feeling confused or overwhelmed. That’s why our firm offers a free one-hour consultation, during which we can answer your questions about Social Security, or other financial questions you may have. Don’t live in the Seattle area? That’s no problem; you can schedule a call or video conference with us as well. To schedule a meeting with one of our Advisors, go to the “Contact Us” page at www.viridianadvisors.com or simply use this link.