** ACTION MAY BE REQUIRED **
On October 30, 2015, Congress unexpectedly eliminated two popular Social Security claiming strategies as part of the Bipartisan Budget Act of 2015. As a result, these two strategies known as “file and suspend” and “restricted application for spousal benefit” have been eliminated for most future retirees, but depending on your age, you may still have time to take advantage of them.
File and Suspend
Under the old rules, an individual who had reached full retirement age could file for benefits in order to allow a spouse to file for spousal benefits. The individual could then suspend the benefit in order to claim an increased benefit at a later date, up to age 70.
Under the new rules, the worker can file and suspend and accrue additional benefits, but no one can collect benefits on the worker’s earnings record during the suspension period, effectively ending the strategy. The new rules also mean that a worker who files and suspends can no longer request a lump-sum payment in lieu of receiving delayed benefits for the period in which they were suspended.
If you are currently at least age 66 or will be by April 30, 2016 (born before 4/30/1950), you may still be able to use the file-and-suspend strategy to allow your eligible spouse to file for benefits, while also increasing your future benefit. You must take action by April 30, 2016, which is when the door closes to initiate this strategy.
Under the old rules, a married individual who had reached full retirement age could file a “restricted application” for spousal benefits after the other spouse had filed for benefits. This allowed the individual to collect spousal benefits while delaying filing for their own benefit, in order to increase their future benefits.
Under the new rules, an individual born in 1954 or later who files a benefit application will be deemed to have filed for both worker and spousal benefits, and will receive whichever benefit is higher. They are no longer allowed to file only for spousal benefits.
To file a restricted application and claim only spousal benefits at age 66, you must be at least age 62 by the end of December 2015. At the time you file, your spouse must have already claimed Social Security retirement benefits or filed and suspended benefits before the effective date of the new rules.
What Has Not Changed
If you are already using one of these strategies, you are not affected by the new rules. You have already met the age requirements.
As well, widows and widowers are not affected by the new rules. If you are eligible for both a survivor benefit and a retirement benefit based on your own earnings record, you can still opt to receive one benefit first and then switch to the other higher benefit later.
Basic options for claiming Social Security remain unchanged. Currently, the earliest age at which you can receive Social Security retirement benefits is 62, but if you choose to take benefits before your full retirement age (66 to 67, depending on birth year), your benefit will be permanently reduced by as much as 30%. On the other hand, if you delay receiving benefits past your full retirement age, you will increase your benefit by 8% for each year you delay, up to age 70.
Determining when to file for Social Security benefits is an individual decision that must be based on many factors, including other sources of retirement income, whether you plan to continue working, how many years you expect to spend in retirement, and your income tax situation. If you are married, you and your spouse will need to plan together, taking into account the benefits you each may be entitled to, including survivor benefits.
Please contact us to discuss any planning decisions you may need to make associated with these changes.