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Important Changes in Social Security Filing Strategies

By Markus Bras, CFP ®, MBA; Director of Pilot Services, American Financial Advisors, Inc.

Two frequently used Social Security filing strategies (“File and Suspend” and “Restricted Application”) will change. The “File and Suspend” option will be available until April 2016, while the “Restricted Application” will be eliminated for anyone born in 1954 or later.

A review of the basic Social Security terms and filing strategies is important when discussing these Social Security changes. It is necessary to note that the anticipated changes have not been finalized yet by the Social Security Administration. Even though these changes are part of the 2015 Budget Agreement, analysis of the final Social Security Administration language is required prior to being able to provide a complete review of the filing strategy changes.

There are four different Social Security Benefits

Retirement Benefits:

Social Security benefits based on your own Social Security earnings, which can be claimed as early as age 62. A reduction in benefits occurs if you start collecting Social Security benefits between age 62 and Full Retirement Age (FRA). Benefits will continue to increase if commencement of Social Security benefits is delayed between FRA and age 70.

Spousal/Dependents Benefits:

Spousal Benefits are Social Security benefits based on the earnings record of your spouse, while your spouse is still alive. Dependents Benefits can also be claimed by dependents younger than age 19 or dependents who are disabled.

Survivors Benefits:

Social Security benefits based on the earnings record of your deceased spouse. Survivors Benefits can also be claimed by dependents younger than age 19 or dependents who are disabled.

Disability Benefits:

Social Security benefits received as the result of a disability.

What is Your Retirement Age?

Full Retirement Age (FRA) is based on the year you were born. If you were born before 1938 your FRA is 65. If you were born between 1938 and 1943 your FRA increases incrementally from 65 to 66. If you were born between 1944 until 1954 your FRA is 66. If you were born between 1955 and 1960 your FRA increases incrementally from 66 to 67, and stays at age 67 for those born after 1960. The FRA is important because it determines the reduction in retirement benefits if benefits are started early. The FRA also determines eligibility for the “File and Suspend” strategy and filing spousal benefits only at FRA (“Restricted Application”), as discussed below.

The Primary Insurance Amount (PIA) is the earned benefit level at Full Retirement Age (FRA) and is based on an average of the highest 35 years of Social Security earnings. All Social Security benefits are based on a percentage of this amount. At American Financial Advisors we are able to analyze Social Security benefits based on the PIA for the pilot and spouse. The PIA can be determined from the Social Security website (www.ssa.gov).

You can only collect one type of Social Security benefits. This may or may not be the higher level of benefits you are entitled to. Sometimes it may be beneficial to claim a lower benefit first while giving another Social Security benefit the opportunity to increase before claiming that benefit level.

Claiming Retirement Benefits or Spousal/Dependents Benefits prior to Full Retirement Age (FRA) will affect either benefit level. Survivors Benefits will not depend on when you start either Retirement Benefits or Spousal/Dependents Benefits, but are based on when you collect the Survivors Benefits.

We frequently recommend the following two Social Security Claiming Strategies in our Social Security Analysis report. Eligibility for both filing strategies will now depend on year of birth.

“File and Suspend”

Using the File and Suspend strategy, you will file for your Retirement Benefits so your spouse or dependent children can collect their benefits based on your earnings record, followed immediately by suspending and delaying your own benefits until they are higher at an older age. Your retirement benefits will increase each month you delay collecting beyond your Full Retirement Age (FRA), up until age 70. The “File and Suspend” option can only be selected if you are at or older than your FRA. If your spouse has a limited or no earnings record you would have to start your social security benefits before your spouse will be able to claim a percentage of your benefits. After starting your Social Security benefits you immediately suspend these benefits. Your spouse will still be eligible for her spousal benefits based on your earning record, while your suspended benefits continue to increase, until reaching age 70.

Important change: The above mentioned “File and Suspend” filing strategy is directly affected by the recently enacted Budget Agreement. The “File and Suspend” strategy will only be available until April 2016. You must have reached FRA by April 2016, in order to be eligible for the “File and Suspend” strategy. This means that you must be born on or before 4/30/1950 in order to be able to use the “File and Suspend” strategy on or prior to 4/30/2016.

If you are born after 4/30/1950, you will still be able to suspend social security benefits, but spousal and/or dependent benefits will cease once your social security benefits are suspended.

“Restricted Application” (Claim Spousal Benefits at FRA and Claim Higher Benefits Later)

Another frequently used strategy is to collect half of your spouse's benefits at Full Retirement Age (FRA) and delay collecting your own benefits until later, when the benefits will be higher. This strategy works best for two-career couples. Just as with the “File and Suspend” option described above, this strategy is only available as of your FRA. If you start Social Security benefits prior to your FRA, you will get the higher of your own retirement benefits or the spousal benefits. You will not be able to select which benefit to receive if you commence benefits prior to your FRA. If you claim Spousal Benefits only at your FRA by filing a restricted application for Spousal Social Security benefits, your own Social Security Retirement Benefits will continue to increase until reaching age 70.

Important change: As a result of the recently enacted Budget Agreement, the above-mentioned “Restricted Application” will only be available for those born in 1953 or earlier. For those born in 1954 or later, you are deemed to file for all available benefits and will not be able to select spousal benefits only.

American Financial Advisors is updating the software program used to analyze Social Security benefits. Once the Social Security Administration has finalized implementing the social security changes, we will re-analyze all social security analysis reports of AFA’s clients who have not yet commenced benefits.

If you and/or your spouse have not yet commenced Social Security benefits, feel free to contact us in order to analyze your social security benefits.

The Primary Insurance Amount (PIA; also known as Monthly Benefit Amount) is one of the most important factors in determining your Social Security benefit commencement. The PIA is the benefit you will receive at your Full Retirement Age (FRA). This benefit can be found on the “My Social Security” section of www.ssa.gov.

  • Go to www.ssa.gov
  • Click on the “My Social Security” tab.
  • Create an account or Sign In if you already have an account.
  • Select the “Overview” tab once you are on the “My Social Security” website.
  • Select “View Estimated Benefits”
  • The Primary Insurance Amount (PIA) is the dollar value at Full Retirement Age.

In order for us to analyze your Social Security benefits would you be able to email us the following information (you can copy and paste the information requested below and email back to us by selecting “Reply”)? The requested Life Expectancy should be based on your family’s health history and longevity, in addition to your health status. Please indicate the requested Life Expectancy by age for you and your wife. If this information is not supplied we will use an average expected age 82 Life Expectancy for pilots and age 85 for the spouse.

  • Your Primary Insurance Amount (PIA): $
  • Your Spouse’s Primary Insurance Amount (PIA): $
  • Your Life Expectancy (age):
  • Your spouse’s Life Expectancy (age):
  • Have you commenced Social Security benefits? Yes/No
  • If you answered “Yes” to the previous question, what is the Social Security benefit currently received by you: $
  • Has your Spouse commenced Social Security benefits? Yes/No
  • If you answered “Yes” to the previous question, what is the Social Security benefit currently received by your spouse: $

The Social Security analysis should only be used as a guideline in determining when to commence Social Security benefits. The analysis is based on current data which is subject to change without notice. The information you provide to American Financial Advisors regarding your Social Security benefits is used in the preparation of the analysis. Commencement of Social Security benefits is based on several, unknown, future events, which cannot be determined ahead of time with certainty. The recommended benefit commencement dates should therefore solely be used as a guideline in the determination of the proper time to commence Social Security benefits for you and your spouse.

Please do not hesitate to contact us if you have any questions or concerns about your Retirement investment portfolio or benefits. We very much appreciate the trust you are placing in our entire AFA financial planning team and me. Your AFA team can be reached at 888-679-9779 at the following extensions and email addresses:

Mark Bras, CFP®, MBA ext. 3 mbras@afadvisors.com
Leslie Kelly, CFP®, AIF® ext. 1 lkelly@afadvisors.com
Joan Morales ext. 6 jmorales@afadvisors.com
Bill Mertes, CFA ext. 5 wmertes@afadvisors.com
Matt Boyce, CFP® ext. 2 mboyce@afadvisors.com
Jim Cable ext. 8 jcable@afadvisors.com
Alex Bras ext. 4 abras@afadvisors.com

Registered representative of and securities offered through Foothill Securities, Inc., member FINRA/SIPC. Advisory services offered through American Financial Advisors, Inc., a registered investment advisor. American Financial Advisors, Inc. and Foothill Securities, Inc. are not affiliated companies.

American Airlines, Inc. (“American Airlines” and/or “AA”) is not affiliated with, nor does it endorse American Financial Advisors, Inc. (“American Financial Advisors” and/or “AFA”). The AFA website is not authorized, sponsored, or otherwise approved by American Airlines, Inc., and American Airlines is not responsible for the content of the AFA website, nor of any promotional materials prepared by American Financial Advisors.

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