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What is Social Security’s ‘restricted application’ strategy?

March 03, 2019

This Spring, Simply Money Advisors is becoming Allworth Financial. As we expand our services to better meet your retirement planning needs, we needed a name that encompasses all that we are.  Don’t worry. We’ll still deliver our same no-nonsense money advice every week in the Simply Money column, presented by Allworth Financial. 

Rob and Alicia from Edgewood: We’ve heard of a Social Security strategy called filing a ‘restricted application’ to boost our benefit. Is this something you recommend using?

Answer: As with most questions revolving around Social Security, it depends. 

First, let’s explain the idea behind the restricted application strategy as simply as we can. It involves one of you filing for your own Social Security benefit based on your own record, then the other filing a ‘restricted application.’ The one who files this restricted application is basically telling the Social Security Administration that you’re filing to claim Social Security, but you want spousal benefits only and want to delay claiming the benefit on your own record (think of this approach as limiting the scope of your application to just one type of benefit). This tactic allows the one who’s receiving the spousal benefit to let their own benefit grow by eight percent a year until age 70, at which time they would switch over to claiming their own benefit. 

But there are some big “buts” to using this strategy: the one who is filing to restrict their application must be at least full retirement age; they must have been born before January 2, 1954; and their spouse must already be claiming benefits. Nevertheless, despite the multiple qualifiers, Reuters reports about 13 million Americans may qualify to use this strategy and not even realize it. It could even generate as much as $67,000 in extra retirement income in some cases, according to a Boston University analysis.

But let’s be real: this strategy is basically a loophole, just like the ‘file and suspend’ strategy that was recently phased out. Even the Social Security Administration calls it such, and in 2015, Congress made some changes to address the issue: anyone born on or after January 2, 1954, will no longer have this option available (unless they are a widow or widower).

The Simply Money Point is that you should take advantage of the restricted application strategy if you qualify. But as you probably already realize, Social Security claiming strategies can be fairly complex. Navigating the rules and various scenarios requires in-depth knowledge. A fiduciary financial advisor (one who works in your best interest) is a good professional to have in your corner as you approach retirement and Social Security age.

 

Anthony in Bridgetown: My 22-year-old son doesn’t make a ton but wants to open an account to keep some emergency money. What kind should he use? 

Answer: First of all, congratulations to your son for recognizing the importance of having cash set aside to pay for an unexpected expense. Not many 20-somethings make this a priority. His ultimate goal should be to have an emergency fund that covers three to six months-worth of vital living costs.

With that said, your son has a couple of options. Given the current national average interest rate for a savings account is a paltry 0.09 percent, he could opt to open an FDIC insured high-yield savings account with an online bank. A website like NerdWallet.comor Bankrate.comare great starting points for comparing interest rates. Within the last few weeks we spotted annual percentage yields (APY) as high as 2.41 percent.

He may also want to check money market rates at his local bank or credit union. While the interest rates may not be as high as online banks, the convenience may outweigh the small difference in interest. A Certificate of Deposit could offer even higher rates, but it will be a little less ‘liquid’ (a term that refers to the ease with which money is accessible).

Here’s The Simply Money Point: No matter where your son decides to save his emergency fund money, just make sure he does his research.

 

Responses are for informational purposes only and individuals should consider whether any general recommendation in these responses are suitable for their particular circumstances based on investment objectives, financial situation and needs. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing, including a tax advisor and/or attorney. Nathan Bachrach and his team offer financial planning services throughSimply Money Advisors, a SEC Registered Investment Advisor. Call (513) 469-7500 or email simplymoney@simplymoneyadvisors.com.

Social Security