New Rules and Crucial Deadlines for Social Security

The Bipartisan Budget Act of 2015, signed into law on November 2, 2015, would eliminate two Social Security claiming strategies recommended by savvy Financial Planners: 1) file and suspend, and 2) restricted application.

Used as part of a comprehensive retirement plan, these strategies often equated to tens of thousands – or even hundreds of thousands of dollars in additional lifetime benefits. In a nut shell, these strategies worked by allowing one spouse to claim spousal benefits on the other spouses record, while allowing their own benefit to accrue delayed retirement credits of 8% per year up to age 70.

The new regulations will take effect 180 days after enactment. That leaves a short window of opportunity for those who are eligible to take advantage of these strategies before the window closes.

First, a brief explanation of each strategy.  (For a more comprehensive explanation of Social Security strategies as they currently exist,  see my book on Amazon: When to Apply for Social Security Retirement Benefits: Strategies for Maximizing the Guaranteed Income You Can't Outlive)

File and Suspend
This strategy allows a spouse, who has reached full retirement age, to file for retirement benefits and then suspend them so that they continue to earn delayed retirement credits. The main purpose for filing and suspending is to allow the other spouse to claim spousal benefits.

Those who are currently using this strategy, and those who or eligible and make the election by the April 29, 2016 deadline are unaffected by the legislation.

However, those who file and suspend after the deadline will also have all auxiliary benefits suspended. Under the new rules, suspending one’s retirement benefits will also cause a suspension of spousal or other dependent benefits.

Restricted Application
This strategy is currently used by people who have reached their full retirement age and their spouse has already claimed a retirement benefit. The benefit of this strategy, when combined with receiving spousal benefits, is that it allows your own benefits to accrue delayed retirement credits of 8% per year up to age 70.

Under the new rules, anyone who is 62 or older by the end of 2015 retains the right to claim spousal benefits only at Full Retirement Age.

Those born in 1954 or later will not be able to use this strategy. People in this category who claim a spousal benefit, even after they have reached their full retirement age, will be forced to also start their own retirement benefit.

Also, if you turn 62 before December 31, 2015, you do NOT need to take any action by to retain the Restricted Application option. You will simply be grandfathered in under the old rules (assuming you meet the age requirements), and can elect to file a restricted application when you reach Full Retirement Age.

If your situation is described by one of the following scenarios, your claiming strategies will be impacted by the new rules.

1) Divorcees who were born in 1954 or later

These divorcees will be able to claim either a spousal benefit or their own retirement benefit (whichever is larger), but they will not be able to switch from one to the other at a later time.

2) Couples where the person who was planning to file a restricted application (claim a spousal benefit first than switch to their own benefit later) was born after 1953.

People born after 1953 will not be able to claim one benefit and then switch to another benefit later.

3) Couples who are planning to pursue a restrictive application strategy and the person who plans to claim a spousal benefit was born in 1953 or earlier.

These are couples where the primary beneficiary plans to claim his/her benefit in the future (or has already claimed a benefit), but the spouse has not yet claimed a spousal benefit. As long as the spouse was born in 1953 or earlier, the spouse will be able to claim a spousal benefit after reaching 66 and then claim their own benefit later.

4) Couples who plan to pursue a file and suspend strategy, and the person who plans to claim a spousal benefit was born in 1953 or earlier

The new law provides a window of 180 days after the law becomes effective where couples can still use the file and claim strategy. After that window closes, the file and suspend strategy will be forever lost.

Notably, there are no changes to surviving spouses under the new rules. Surviving spouses who are also entitled to both retirement benefits on their own earnings record can still choose to claim survivor benefits first and switch to their own retirement benefits later, or vice versa, if that would result in a larger benefit.

As a CPA, CERTIFIED FINANCIAL PLANNER™, and fee-only financial advisor, I believe that Financial planning should be about you and your unique goals in life, not product sales.

Contact me through LinkedIn or our website to learn how I can help you replace the stress of unresolved financial issues with the peace of mind that comes from knowing you have a plan in place!

Disclaimer: The content on this post is not intended to provide tax, legal, accounting, financial, or professional advice, and readers are advised to seek out qualified professionals that provide advice on these issues for specific client circumstances. In addition, the author cannot guarantee that the information on this website/post has not been outdated or otherwise rendered incorrect by subsequent new research, legislation, or other changes in law or binding guidance. The author shall not have any liability or responsibility to any individual or entity with respect to losses or damages caused or alleged to be caused, directly or indirectly, by the information contained on this post.