by Sheila Jamison and Rich Jamison
The Bipartisan Budget Act of 2015 included changes to claiming social security benefits. Two claiming strategies that potentially had provided some couples with higher lifetime benefits were eliminated. The magnitude of the loss depends on work history, personal situation and lifespan.
A Quick Review
You can claim your social security benefits as early as age 62 to as late as age 70. The significance of this lies in the later you begin collecting, the higher your monthly benefit will be. The deferral credits can amount to an appreciable difference. Your monthly benefit at 70 is 75% higher than it is at 62. From full retirement age, they grow at 8%/year until age 70 or you start taking benefits, whichever happens first.
*If you would like to delay taking your social security benefits as long as possible, view our financial calculators page to help you achieve that.
In 2000, the social security administration gave you the ability to suspend your benefit. It permitted you to stop your monthly benefit even if you had already claimed and begun receiving it and still earn the deferral credits. This provided recipients with some new strategies for maximizing social security benefits. Two of these, “file and suspend” and “restricted spousal benefits” are the ones eliminated.
File and Suspend
The way this worked was that one member of the couple would file for benefits and immediately suspend those benefits. This would keep the deferral credits compiling for his/her eventually benefit. The act of filing would enable the spouse to collect a spousal benefit while also file and suspending his/her own benefit … also earning the deferral credits for a higher monthly benefit when he/she eventually took them. Each qualified for the higher deferred benefit in spite of one spouse collecting a spousal benefit in the interim.
Restricted Spousal Benefit
This permitted a spouse upon attaining his/her full retirement age to suspend his/her own benefit and take only the spousal benefit. His/her benefit would meanwhile accrue the deferral credits to make it higher when was finally taken.
Bottom line was one spouse could receive benefits based on the earnings of the other while both let their own benefit grow. The one taking the spousal benefit would have the choice when he/she took his/her own benefit of choosing his/her own or the spousal benefit, whichever was higher.
File and Suspend – A person who file and suspends when the new rule goes into effect (April 30, 2016) will suspend all benefits that are payable to others based on his/her earnings record. Those already receiving benefits under the old rules are not affected. Similarly, those who reach full retirement age before April 30 can slip in under the wire and play by the old rule … meaning collect significantly more lifetime benefits than an identical couple who hit full retirement age by as little as one day later if that day falls under the new rules.
Restricted Spousal Benefit – A person can no longer claim spousal benefits only when the last of those still eligible pass the cutoff. Filing then will mean filing for all eligible benefits.
Getting In Under the Wire
Couples and families already using this strategy will be grandfathered. Your benefits will not change or be interrupted. A select few others might still escape this loss … if they act promptly.
If you reach full retirement age on or before April 29, 2016, you can claim your social security benefits under the current rules. Nothing changes for you. If you are born on or before May 1, 1950 and you have requested suspension of your benefits by April 29, 2016, you will still have access to the current strategies and will be grandfathered into the system.
Additionally, Most of the strategies widows and widowers exercise will not be affected by this legislation. Widows and widowers can still file for their deceased spouses benefits while letting their own benefits build delayed credits. Or they can start receiving their own benefit at 62, then claim the former spouse's benefit at Full Retirement Age if this strategy offers more money.
And Those Who Don’t
With the new changes, one spouse will ONLY be able to claim the spousal benefit OR their own benefit. This spouse will not be able to change from spousal benefit to her own at age 70 as in our example above.
The spousal benefit can only be claimed if the spouse is receiving his/her benefit. Therefore, the main spouse in the equation loses the ability to build credits.
Further, spouse at age 66 can claim either half of his/her spouse’s benefit or his/her own benefit. The spouse cannot claim the spousal benefit and then switch to his/her own benefit at age 70 if it’s higher.
Elder law attorney, Nicki Applefield, says the elimination of the ‘File-and-Suspend’ and ‘Claim-Now, Claim-More-Later’ strategies could reduce a couple’s lifetime income by tens of thousands of dollars. “Now is the time to contact your financial advisor or elder law attorney about taking action and maximizing your benefits to ensure the greatest quality of life in retirement.”
Sometimes, Do Nothing
There are times when you shouldn’t file and suspend. File and suspend is/was accomplished by a concomitant claim for a spousal benefit only. You would have elected the file and suspend decision AND the spousal benefit only decision. Under the new rules, you only get one claiming decision – you can claim the restricted (spousal) benefit or you can file and suspend. That limitation is the main reason that someone who is eligible to file and suspend under existing rules may not want to.
If you were 62 (or older) by January 1, 2016, you retain the right to claim spousal benefits (letting your own grow at that 8%) when you turn 66 (assuming your spouse is collecting benefits or was old enough to file and suspend by the April 2016 deadline). As the “cherry on top” of this sundae, you don’t have to do anything until then. But note that to claim only spousal benefits and delay your own benefit, you must have been at least 62 years by January 1, 2016. This strategy will no longer be available for you if you turn 62 in 2016 or later.
It’s a Balance
Even if you are 66 or older by the April 29 deadline, do not request to file and suspend your Social Security benefits if what you really want to do is to claim spousal benefits for up to four years while your own benefits continue to grow up until age 70. You can achieve that as noted above.
However, triggering benefits for a spouse or minor child, or reserving the right to request a lump sum payout of suspended benefits anytime up to age 70 requires you to File and Suspend your benefits no later than April 29th, 2016.
Do You Understand the New Social Security Laws? Staff. Financialexpertsnetwork.com. January, 2016.
Mass confusion over new Social Security rules: April 29 deadline applies only to file-and-suspend strategy, not spousal benefits. Mary Beth Franklin. InvestmentNews.com. March 4, 2016.
New Rules for Claiming Strategies. Acting Commissioner’s Office. www.ssa.gov. February 2016.
New Social Security rules: A new law means that two claiming strategies will be off the table in the coming months. Fidelity Viewpoints. Fidelity.com. March 1, 2016.
New Social Security Rules to End Key Filing Strategies. WSJ.com. Anne Tergensen. Oct. 31, 2015.
One of the Most Lucrative Social Security Strategies for Married Couples is Being Eliminated. Jonnelle Marte. TheWashingtonPost.com. November 3, 2015.
Social Security Claiming Strategy Triage. Mary Beth Franklin. Investmentnews.com. November 2, 2015.
The State of 'File and Suspend': Where The New Social Security Rules Leave Seniors. Jamie Hopkins and David Littell. Forbes. November. 2015,
Updates Based on Bipartisan Budget Act of 2015. Staff. Maximize My Social Security. November 16, 2015.
Why the Social Security file-and-suspend strategy isn't for everyone: Just because you are eligible, doesn't mean this claiming strategy is right for you. Mary Beth Franklin. InvestmentNews.com. March 14, 2016.
The data above were taken from sources deemed reliable. However no guarantee can be made as to their completeness and accuracy.
Interpretations of the data, views and/or opinions expressed are those of the Jamison Financial Group based on market and economic conditions as of the date of publication and are subject to change. They do not necessarily reflect the opinions of any other individual, group or organization.
Nothing in the above is meant to be, nor should it be construed as, investment advice or recommendations to buy or sell any security. Individual securities, whenever mentioned, are for illustrative purposes only and may not be relied upon as investment advice.
Tax and/or legal information contained herein is general in nature and for informational purposes only. It should not be relied upon as advice. Consult your tax professional or attorney regarding your unique situation.
Past performance is no guarantee of future results.
© 2016 Jamison Financial Group. Please feel free to distribute copies to individuals you feel may benefit from the information presented. Commercial use is prohibited.