Restricted Application in 2018

In 2018, folks who are reaching that magical age of 66, which is Full Retirement Age (or FRA, in SSA parlance), may have some decisions to make. This is especially true for married couples, or folks who were married before and are now divorced. The restricted application still applies if you were born before 1954.

Because reaching age 66 in 2018 means you were born in 1952, you are still in line for some special benefits. When the rules changed in 2015, Congress grandfathered some special options to you and your contemporaries born before 1954.

Being born before 1954 gives you the unique privilege to use the “restricted application” option when filing for benefits. (For more details on restricted application, see this article.)

This means that, if you are married to someone who also has a Social Security retirement benefit coming to them, you can (as of age 66) start taking a Spousal Benefit while delaying your own benefit to a later date. (The same applies to an unmarried divorcee who was married for at least 10 years to someone who has a Social Security benefit available.)

Restricted Application in practice

For example, Kelly and James are looking at their options for Social Security benefits. Kelly, who will reach FRA in 2018, has a potential Social Security retirement benefit of $2,000 per month available to her if she files for benefits this year. James, who worked in jobs with lower salary through his career, could have a benefit of $1,500 if he waits until he reaches his FRA in two years (he was born in 1954).

The specific set of circumstances places Kelly and James at a decision-point. Since Kelly was born before 1954, she has the option of using the restricted application – but she can’t file that application until James has filed for his own retirement benefit. Originally, they had intended for both of them to delay filing to age 70, to achieve the greatest benefit for each.

However, with the restricted application available to her, Kelly and James can put a different spin on the process. If James was to file for his own benefits in 2018 (since he’s only going to be 64 this year), he would receive a total benefit of $1,300 per month. But also, now that he’s filed, Kelly can put in a restricted application for Spousal Benefits only – which would net her $750 per month. She is still allowed to delay her own benefit up to age 70, even though she’s receiving the Spousal Benefit.

This will provide the couple with a total benefit of $2,050 per month for the coming 4 years. Then, when Kelly files for her benefit at age 70, she’ll get the full delay credits, 32%, added to her Primary Insurance Amount of $2,000. This will up her benefit to $2,640 in total, which, when added to James’ $1,300, gives the couple a total benefit of $3,940. (Given the amount of James’ PIA at $1,500, he is not eligible for a Spousal Benefit when Kelly files for her own benefit. If his PIA was something less than half of Kelly’s PIA at $2,000, he could receive an additional benefit upon her filing.)

This is less than the total benefit amount that they would have started receiving at age 70 if they had both delayed. That would have come to $4,620, because James’ benefit could have been enhanced by the delay credits to a total of $1,980.

But by using the restricted application strategy, they will receive benefits of more than $98,000 in the intervening 4 years. This works out to 12 years’ worth of the delay credits on James’ benefit – so their break-even point would be at Kelly’s age 82, James’ age 80.

Plus, regardless of the fact that he filed for his own benefit early, if Kelly dies first, James will be eligible to receive Kelly’s enhanced benefit in place of his own as a Survivor Benefit.

As with all Social Security strategies, it pays to know how it all works, in the context of your own situation. The above is just one example of how knowing the rules can make a big difference in the outcome for some folks.

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source https://financialducksinarow.com/12151/restricted-application-2018/