Two strategies that have long been recommended to help married couples potentially optimize their Social Security benefits have come to an end. This year, the IRS has clarified rules that no longer allow for two claiming strategies known as:

  1. File and suspend, and
  2. Restricted application

In the past, some couples have taken advantage of both strategies at the same time — but no more. These were actually strategies conceived out of unintended loopholes in the original benefit design.

Under the previous file and suspend strategy, when one spouse reached full retirement age (FRA) he could file for Social Security benefits, which in turn enabled his spouse to begin claiming a spousal benefit. However, the primary earning spouse could put off actually receiving his own benefit up until age 70.

This allowed him to accumulate delayed retirement credits (DRCs), which increased his benefit amount by as much as 8 percent for each year delayed. The increase in his benefits also was available to his surviving spouse once he passed away. In that scenario, the spouse was eligible for 100 percent of his higher benefit amount, including the delayed retirement credits (assuming the surviving spouse was FRA at that point; if not, she received a reduced percentage). FRA retirees may still file and suspend their own benefit. However, after April 29, 2016, the spouse will not be able to claim Social Security benefits until the primary earner begins drawing his own.

As for the restricted application, up until the end of last year a spouse who reached FRA could elect to receive either her own or a spousal benefit. Then, she could switch to her own (presumably higher) worker benefit at a later date, up until age 70. This strategy enabled one spouse to earn the lesser benefit while growing her own benefit through DRCs. Starting in 2016, only people who turned age 62 or older by Dec. 31, 2015 will have the option to file a restricted application. Everyone else will automatically receive the higher of the worker benefit or spousal benefit — which is how the rule works for a married person who files before FRA.1

Money Saving Tips
What’s Your Strategy for Health Care Expenses in Retirement?

We believe some retirees make the mistake of believing their medical costs will be fully covered by Medicare after they retire. Studies reveal a different story, and the cumulative numbers may cause concerns for some. For example, a 2015 Retirement Health Care Cost Data Report recently released by HealthView Services found:2

  • A 65-year-old healthy couple retiring this year and covered by Medicare Parts B, D and a supplemental insurance policy will pay $266,589 in premiums over their lifetime.
  • The couple’s total health care outlay, including premiums, dental, vision, co-pays and all out-of-pocket expenses, would be closer to $394,954.
  • For a 55-year-old couple retiring in 10 years, those total lifetime health care costs are expected to increase to $463,849 over the rest of their lifetime.

There are a few things to remember about these types of conclusions. First, they assume both spouses will live to a ripe old age, which doesn’t always happen. Second, they assume an average amount of medical expenses incurred by both spouses during that timeframe. However, if both members of a couple live well into their late 80s, chances are good that one or both of them are in reasonably good health throughout retirement and may experience lower than these averages for health care expenses.

These studies may be conclusive based on the parameters of the research, but our health is just as  important as our finances — and, for that matter, as important as our values and lifestyle. So many factors influence our health and longevity that it may be impossible to know how much each person or a couple will need to cover those expenses.

Bear in mind, too, that the average retiree does not have to pay out more than $300,000 at any one time; those expenses are cumulative over 25 to 30 years. To help meet your unknown retirement health care expenses, we believe it’s a good idea to pursue a mix of strategies — including at least one that offers higher income opportunities as you get older.

Depending on your situation, multiple options may be available, from an income annuity that doesn’t start until later in retirement, to a relatively aggressive growth component in your investment portfolio, to an income growth life insurance product that adjusts to capture gains experienced by a linked securities index. We believe it is essential that you work with a financial advisor to help you create strategies utilizing both investment and insurance products that can help meet your long-term retirement goals. Please remember that investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Remember, those lump sum totals cover up to 30 years, but the goal of the average retiree is to be able to pay for health care expenses on a month-to-month and year-to-year basis. For that, we believe you need reliable monthly income and long-term growth opportunities. We can offer a variety of strategies to help you create a retirement income plan to help pay for health care expenses in retirement.

Planning Tip
Pay Off Your Mortgage Early

The longer you take to pay off your mortgage, the more interest you’ll have to pay. If you have a 30-year mortgage, this gives you the flexibility to pay more toward it on a regular basis — but cut back to the regular payment in months when you need extra cash. Consider these tips:

  • Call your mortgage servicer to make sure you would not incur an early pay-off penalty.
  • Add to your payment each month and ensure your servicer applies it to your principal. This is easy to do if you receive a mail-in coupon that asks how to apply the excess payment; if your payment is auto drafted, call to find out where to mail or make an in-person additional payment each month.
  • You can either add a little more to your payment each month or make an extra payment of your regular amount each year. If you’re still working, this may be best achieved during one of the five-week months when you receive an “extra” paycheck.

1 Columbia Threadneedle Investments. Feb. 29, 2016. “Two popular Social Security claiming strategies to end soon.” Accessed March 8, 2016.
2 HealthView Services. 2015. “2015 Retirement Health Care Costs Data Report.” Accessed March 15, 2016. 

Michael Canet is a Registered Representative with TCM Securities, Inc. and can offer securities through TCM Securities, Inc., Member FINRA/SIPC.