Options for parents' Social Security

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
nps
Posts: 418
Joined: Thu Dec 04, 2014 10:18 am

Options for parents' Social Security

Post by nps » Wed Jan 11, 2017 11:51 am

My dad is reaching age 66 shortly and is planning on filing then. My mom is a few months younger and filed at age 62 on her own earnings record. Lifetime my dad probably has a much higher earnings record. They both still work, and both are also covered under my mom's employer provided healthcare.

My dad looked at what SS would pay out at age 66 and age 70, and calculated that he would not break even on the foregone social security until age 82 provided he lives that long. I think he still intends to work either way, but at a much reduced rate compared to his prime years.

I'm in my 30s so not as familiar with SS claiming strategies, but I know "file and suspend" is dead. As far as "restricted application," my amateur read is that my dad could look into filing only for a spousal benefit on my mom's earnings record until he turns 70, which could lower his "break even" age.

1. Am I understanding "restricted application" correctly?
2. Are there any other considerations I should make them aware of as they look at their options?

b42
Posts: 187
Joined: Thu Apr 11, 2013 7:00 pm

Re: Options for parents' Social Security

Post by b42 » Wed Jan 11, 2017 12:02 pm

A consideration that I would look into is their current overall financial situation. Are they in real need of more social security income now? If so, it makes sense to file now. Do your parents have additional funds saved up in taxable or retirement accounts (plus perhaps a pension) to draw from?

I would also look at the break even point another way. There's the chance that your father may not live until the break even point of age 82, but there is the risk (a good risk :D ) that he could live much, much longer and I'm sure he'd rather have a higher monthly check. If he lives to 100 he'd get 18 years of increased benefits after that break even point.

As an example, my grandfather started collecting at age 62 thinking he wouldn't live that long in retirement due to being a 40-year smoker and overweight...and he lived to 91.

User avatar
David Jay
Posts: 3808
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Options for parents' Social Security

Post by David Jay » Wed Jan 11, 2017 12:07 pm

It is not just your father's longevity, it is your mother's as well. It is very likely that one of them will live into their late 80's or early 90's.

The survivor's benefit is 100% of the HIGHER of the two benefits, so your mom will get 100% of your Dad's benefit (if, as you say, he has the higher earnings record). So his delay in taking benefits will impacts the survivor, regardless of which spouse survives longer.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

nps
Posts: 418
Joined: Thu Dec 04, 2014 10:18 am

Re: Options for parents' Social Security

Post by nps » Wed Jan 11, 2017 12:18 pm

Thanks, you are both hitting on my concern. I am hoping they hold off as long as possible to maximize their monthly benefit. However, they will need some additional income if my dad further reduces his workload. My mom will get a small pension when she retires and they have a bit set aside in retirement funds, but I think social security will be the main component of their retirement income.

If I am understanding restricted application correctly, it might provide an additional income source to get him closer to 70 without needing to file on his own record?

Ace1
Posts: 105
Joined: Sun Dec 26, 2010 7:29 pm
Location: Twinsburg Ohio

Re: Options for parents' Social Security

Post by Ace1 » Wed Jan 11, 2017 12:38 pm

Since your dad was at least 62 by Dec 2015, he can file a restricted application as your moms spouse, and collect a spousal benefit, which would be 1/2 of your moms FRA benefit. He can collect this until he files for his own at age 70 or whatever age he decides to start collecting. As has been said previously, the longer he waits, the larger his benefit grows up to age 70.
No benefit to waiting past age 70 to collect one's own benefit.

munemaker
Posts: 1920
Joined: Sat Jan 18, 2014 6:14 pm

Re: Options for parents' Social Security

Post by munemaker » Wed Jan 11, 2017 12:45 pm

I really like this calculator for SS claiming strategy:

http://www.bedrockcapital.com/ssanalyze/

nps
Posts: 418
Joined: Thu Dec 04, 2014 10:18 am

Re: Options for parents' Social Security

Post by nps » Wed Jan 11, 2017 4:58 pm

Ace1 wrote:Since your dad was at least 62 by Dec 2015, he can file a restricted application as your moms spouse, and collect a spousal benefit, which would be 1/2 of your moms FRA benefit.


Ace1, thanks. Do you or anyone know how easy it is to determine FRA benefit for someone who claimed early? I am sure my mom's statements prior to claiming early at age 62 listed an FRA amount, but if I recall correctly the last statement I reviewed with her recently did not list one, I assume because she was already collecting SS.

Ace1
Posts: 105
Joined: Sun Dec 26, 2010 7:29 pm
Location: Twinsburg Ohio

Re: Options for parents' Social Security

Post by Ace1 » Wed Jan 11, 2017 5:16 pm

Yeah, FRA went away when she filed at 62.
Roughly should be 25% more than the amount she first received at 62.
By the way, make sure dad waits to be 66 to execute this, not before.

mac808
Posts: 402
Joined: Mon Sep 19, 2011 8:45 pm

Re: Options for parents' Social Security

Post by mac808 » Wed Jan 11, 2017 6:21 pm

Ace1 wrote:Since your dad was at least 62 by Dec 2015, he can file a restricted application as your moms spouse, and collect a spousal benefit, which would be 1/2 of your moms FRA benefit. He can collect this until he files for his own at age 70 or whatever age he decides to start collecting. As has been said previously, the longer he waits, the larger his benefit grows up to age 70.
No benefit to waiting past age 70 to collect one's own benefit.


Is there any reason for a person in this situation not to file a restricted application and collect the spousal benefit? My parents are both 66 this year but have been waiting until 70 to collect SS. Similar situation with mom barely qualifying for benefits on her own record and dad maxed out.

nps
Posts: 418
Joined: Thu Dec 04, 2014 10:18 am

Re: Options for parents' Social Security

Post by nps » Wed Jan 11, 2017 6:40 pm

Ace1 wrote:Yeah, FRA went away when she filed at 62.
Roughly should be 25% more than the amount she first received at 62.


Thanks for the estimate. She's been full time employed since 62 though, and had many years without income, so I suspect it might be higher? Not sure whether there is an easier way for her to find out without calling SSA.

JW-Retired
Posts: 6312
Joined: Sun Dec 16, 2007 12:25 pm

Re: Options for parents' Social Security

Post by JW-Retired » Wed Jan 11, 2017 7:25 pm

Ace1 wrote:Yeah, FRA went away when she filed at 62.
Roughly should be 25% more than the amount she first received at 62.
By the way, make sure dad waits to be 66 to execute this, not before.

It's one-third more. What she gets is 25% less than the FRA amount, so more precisely the FRA amount would have been 33.3% more than she gets now.

If she had waited all the way to age 70 it would have been 1.32/0.75 = 1.76 times or 76% more than she gets now.
JW
ps: If she didn't get any SS payments because she made too much money, then her FRA amount would keep increasing, I believe more or less as if she had not filed at all. Not sure how many years that can go on? No reason I know of not to call SSA and ask.
Retired at Last

nps
Posts: 418
Joined: Thu Dec 04, 2014 10:18 am

Re: Options for parents' Social Security

Post by nps » Wed Jan 11, 2017 9:57 pm

Appreciate the replies. mac808, based on the information here I can't see why two 66-year olds who do not otherwise intend to claim would not have the spouse with the lower higher earnings file a restricted application. There does not appear to be a downside in that situation.

Edit: Zott, you're right, typed that one too fast
Last edited by nps on Wed Jan 11, 2017 10:21 pm, edited 1 time in total.

Zott
Posts: 199
Joined: Fri Jul 31, 2015 10:21 pm

Re: Options for parents' Social Security

Post by Zott » Wed Jan 11, 2017 10:08 pm

nps wrote:Appreciate the replies. mac808, based on the information here I can't see why two 66-year olds who do not otherwise intend to claim would not have the spouse with the lower earnings file a restricted application. There does not appear to be a downside in that situation.


I have a friend in the same basic situation nps and mac, and reached the same conclusion. However I want to point out in the above quote, the Lower-earning spouse should file a regular application and commence receiving their benefit. The higher-earning spouse would file a restricted application and would receive a spousal benefit and have the delayed retirement credits to age 70 on their own benefit.

mac808
Posts: 402
Joined: Mon Sep 19, 2011 8:45 pm

Re: Options for parents' Social Security

Post by mac808 » Thu Jan 12, 2017 7:41 pm

I just want to make sure I understand this. I'm sure other forum members might be in similar situations themselves or with relatives.

Mom and Dad both born in 1951, both hit FRA upon turning 66 in 2017. Assume for simple math that Mom's FRA benefit is $800 and Dad's is $2,000. The day after her 66th birthday, Mom can file for SS benefits on her own record, and the day after that, Dad can file a restricted application for spousal benefits. Mom receives $800/month, Dad receives (50% of that?) $400/month.

Over the next 4 years they receive $1,200/month from the SSA. Then the day after Dad's 70th birthday, he files for benefits under his own record at $2,760/month (a $2,000 FRA benefit * 1.38 for deferring to age 70), which replaces the $400/month that he has been receiving. The day after that, Mom goes in and switches from her own record to a spousal benefit on Dad's record. Her $800/month is replaced by (50% of Dad's FRA of $2,000) $1,000/month. From then on they receive a combined $3,760/month until one of them dies, at which point the survivor receives $2,760/month for the rest of their life.

Is that right?

I'd be curious to know how many couples are eligible for this but don't file due to lack of awareness. For some reason I had thought all these scenarios ended with the termination of file and suspend. Craziness.

Ace1
Posts: 105
Joined: Sun Dec 26, 2010 7:29 pm
Location: Twinsburg Ohio

Re: Options for parents' Social Security

Post by Ace1 » Thu Jan 12, 2017 9:38 pm

Mac,
I believe your understanding is correct, however, the approximate multiplier for
your dad's delayed retirement credit (waiting to 70) is 1.32 ( +8% per year).
You should be able to get these numbers from the annual report social security sends out to
everyone, or establish accounts at the my ssa website to see the data.
File and suspend was modified by the govt but it was not eliminated, per se.
The change effectively eliminated it however, as it prevents savvy people taking advantage of a rule
that resulted in an unintended consequence. The old rule was ended as of April 30, 2016.
Restricted application is still available to individuals who were 62 no later than Dec 31, 2015.

User avatar
AllieTB1323
Posts: 143
Joined: Tue Mar 24, 2015 10:17 am
Location: Desert Washington State

Re: Options for parents' Social Security

Post by AllieTB1323 » Thu Jan 12, 2017 9:49 pm

David Jay wrote:It is not just your father's longevity, it is your mother's as well. It is very likely that one of them will live into their late 80's or early 90's.

The survivor's benefit is 100% of the HIGHER of the two benefits, so your mom will get 100% of your Dad's benefit (if, as you say, he has the higher earnings record). So his delay in taking benefits will impacts the survivor, regardless of which spouse survives longer.



Isn't the survivor benefit capped at the higher wager earner's benefit at Full Retirement Age, in this case 66?

mac808
Posts: 402
Joined: Mon Sep 19, 2011 8:45 pm

Re: Options for parents' Social Security

Post by mac808 » Thu Jan 12, 2017 11:27 pm

Ace1 wrote:Mac,
I believe your understanding is correct, however, the approximate multiplier for
your dad's delayed retirement credit (waiting to 70) is 1.32 ( +8% per year).
You should be able to get these numbers from the annual report social security sends out to
everyone, or establish accounts at the my ssa website to see the data.
File and suspend was modified by the govt but it was not eliminated, per se.
The change effectively eliminated it however, as it prevents savvy people taking advantage of a rule
that resulted in an unintended consequence. The old rule was ended as of April 30, 2016.
Restricted application is still available to individuals who were 62 no later than Dec 31, 2015.


1.32 not 1.38 - yes, my bad on the math. Is file and suspend related to the restricted application that I laid out above? My understanding is that file and suspend would be a separate case where (in my scenario) Dad ''files and suspends'' and then mom is eligible for 50% of his FRA benefit, which might be greater than 100% of her own FRA. I'm surprised that they would fix one loophole but leave the other open (although it does seem they put a timer on it as you have to turn 66 before 2020 I think to be eligible).

Ace1
Posts: 105
Joined: Sun Dec 26, 2010 7:29 pm
Location: Twinsburg Ohio

Re: Options for parents' Social Security

Post by Ace1 » Thu Jan 12, 2017 11:59 pm

Mac .. you have laid out correctly as I understand it, the restricted application process.
File and suspend USED to allow what you described, dad at 66 files and suspends, mom then files as dads spouse to get the 50% spousal benefit. Dad then refiles at 70 to collect 32% larger amount.
This opportunity was eliminated by congress for those under 66 by April 30, 2016.
Now anyone can still file and suspend, but the new rule eliminated anyones ability to collect from a suspended benefit, so in the typical example like you described, mom could NOT collect a spousal since dad suspended. If someone met the age requirement and executed the file and suspend by April 30, 2016, or were already using this method, they were grandfathered in.

User avatar
Watty
Posts: 11185
Joined: Wed Oct 10, 2007 3:55 pm

Re: Options for parents' Social Security

Post by Watty » Fri Jan 13, 2017 12:17 am

it would be good to make sure that they understand how their Social Security will be taxed since in some situations it can cause them to be in a much higher than expected tax bracket.

https://www.bogleheads.org/wiki/Taxatio ... y_benefits

https://www.bogleheads.org/wiki/Social_ ... calculator

It varies wildly depending on the details but once people understand the taxes it sometimes makes sense to delay social security a few more years so they can do Roth conversions that might be in the 15% tax bracket so that their taxes will be lower later.

OutInThirteen
Posts: 381
Joined: Thu Mar 14, 2013 2:11 pm

Re: Options for parents' Social Security

Post by OutInThirteen » Fri Jan 13, 2017 8:03 am

AllieTB1323 wrote:
David Jay wrote:It is not just your father's longevity, it is your mother's as well. It is very likely that one of them will live into their late 80's or early 90's.

The survivor's benefit is 100% of the HIGHER of the two benefits, so your mom will get 100% of your Dad's benefit (if, as you say, he has the higher earnings record). So his delay in taking benefits will impacts the survivor, regardless of which spouse survives longer.



Isn't the survivor benefit capped at the higher wager earner's benefit at Full Retirement Age, in this case 66?


No, that cap is for spousal benefits, assuming the spouse waits until their own FRA to claim. Survivor benefit is capped at 100% of whatever benefit the deceased spouse was receiving.

JW-Retired
Posts: 6312
Joined: Sun Dec 16, 2007 12:25 pm

Re: Options for parents' Social Security

Post by JW-Retired » Fri Jan 13, 2017 9:21 am

OutInThirteen wrote:
AllieTB1323 wrote:
David Jay wrote:It is not just your father's longevity, it is your mother's as well. It is very likely that one of them will live into their late 80's or early 90's.

The survivor's benefit is 100% of the HIGHER of the two benefits, so your mom will get 100% of your Dad's benefit (if, as you say, he has the higher earnings record). So his delay in taking benefits will impacts the survivor, regardless of which spouse survives longer.



Isn't the survivor benefit capped at the higher wager earner's benefit at Full Retirement Age, in this case 66?


No, that cap is for spousal benefits, assuming the spouse waits until their own FRA to claim. Survivor benefit is capped at 100% of whatever benefit the deceased spouse was receiving.

This is correct. IMO, this is all the reason needed for any significantly higher earning spouse choosing to delay to 70.
JW
Retired at Last

mac808
Posts: 402
Joined: Mon Sep 19, 2011 8:45 pm

Re: Options for parents' Social Security

Post by mac808 » Fri Jan 13, 2017 5:28 pm

Thanks so much for the info guys. Much appreciated.

Post Reply