by Chris Cahill, J.D., CFP®, CAP®, Principal, Family Office Services
The clock is ticking on significant Social Security updates. On November 2nd of last year, President Obama signed a new budget bill (the Bipartisan Budget Act of 2015) that eliminated the “file and suspend” and the “restricted claim for spousal benefits only” claiming strategies. This action was a surprise to many pundits and is seen as an attempt to close what some feel were unintended loopholes in the old law. If you were planning to utilize either of these strategies you should pay close attention to these changes.
File and Suspend
Under the old law, a spouse could only claim spousal benefits if their partner had filed for their own benefits. The file and suspend strategy sprung out of this requirement. What many filers did was file for benefits at full retirement age and immediately suspend those benefits. This action permitted their spouses or dependent minor children to begin receiving benefits while putting their own benefits on hold. By continuing to defer their benefits, the filers were able to accrue additional delayed retirement credits of 8% per year up to age 70. The strategy worked especially well for married couples where one spouse was the primary wage earner. The file and suspend option permitted these families to collect spousal benefits now, with the prospect of larger benefits for the primary earner via the continued deferral to age 70. (The added benefit of the “defer to age 70 option” is that a surviving spouse receives 100% of their deceased spouse’s benefits at their passing. By permitting the primary earner’s benefit to grow to age 70, the surviving spouse would be able to get the benefit of the larger payout at their partner’s passing.)
Restricted Claim for Spousal Benefits
A lesser utilized strategy, known as the restricted claim for spousal benefits only, has also been eliminated. Under this strategy, where one spouse had reached full retirement age and started receiving benefits and the other spouse (after also having attained full retirement age) wished to continue to work, the working spouse could file a restricted claim for spousal benefits only and receive one half of their spouse’s benefits. This strategy could actually be coupled with the file and suspend strategy outlined above, resulting in a significant increase in household income between the ages of 66 to 70.
Benefits Eliminated
For most Social Security beneficiaries, the November 2nd budget bill eliminated the file and suspend strategy as well as the restricted claim for spousal benefits only. After April 30, 2016, you can no longer collect benefits on a spouse’s record during suspension.
Act Now!
There is a short window of opportunity to take advantage of the old file and suspend regulations for a select group of individuals (anyone born on May 1, 1950, or earlier, can still file and suspend until April 30, 2016). Similarly, individuals born on January 1, 1954 or earlier retain the ability to file a restricted claim for spousal benefits only at age 66. If you fall within either of these groups, you should reach out to us or your financial advisor to make sure that you are fully informed of your options. We would encourage that you do this right away, to prevent waiting for the last minute as the Social Security Administration will likely be very busy approaching April 30, 2016.
