Major Changes to Social Security

The Bipartisan Budget Act of 2015 has put an end to the popular Social Security strategies of ‘File and Suspend’ and ‘Restricted Applications for Spousal Benefits.’ B|O|S has been closely following these changes and will continue to advise our clients on their optimal Social Security strategies. Unless you are grandfathered as noted below, the following changes will occur.

An End to ‘File and Suspend’: The benefit claiming strategy known as ‘file and suspend’ will cease to exist by the end of April 2016. Previously, ‘file and suspend’ allowed the higher earning spouse to file but immediately suspend retirement benefits at full retirement age. This allowed the higher earning spouse to earn delayed retirement credits on his/her suspended benefits until age 70 while the other spouse could collect a spousal benefit.

Under the new rules, if a worker ‘files and suspends’ his or her retirement benefits, all other benefits paid from his or her record are also suspended. This includes spousal benefits and dependent and disabled child benefits.

An End to ‘Restricted Application’ Strategies: A restricted application allowed a worker of full retirement age to choose between receiving a spousal benefit or his or her own retirement benefit. At age 70, he or she could switch from spousal benefits to his or her own retirement benefit which would have grown through delayed retirement credits. Alternatively, he or she could continue to receive spousal benefits if those were higher than his/her retirement benefits.

Under the new rules, Social Security will no longer allow a choice between retirement benefits or spousal benefits thus ending the use of ‘restricted application’ strategies. Social Security will deem which of the retirement benefits or spousal benefits are higher and pay out the higher benefit.

Please note that divorcees will also no longer be able to restrict an application to divorced spousal benefits so that retirement benefits may accrue delayed retirement credits.

Who Must Take Action Now?

If you are 66 or older before April 30, 2016 (born April 30, 1950 or earlier), then you may still request to file and suspend your benefits to trigger spousal or dependent benefits if it is your optimal strategy. You must act by April 30, 2016. We encourage those within this group to contact Social Security soon to avoid long wait times as the April 30th deadline approaches.

Who Else Is Grandfathered In Based On The Previous Rules?

• Those who have already filed and suspended benefits in order to trigger spousal benefits for your spouse and/or dependent benefits for a minor or disabled child are not impacted. Their families will continue to receive benefits on your earnings record.
• Married and divorced spouses who are already collecting spousal benefits—worth half of their spouse’s full retirement age benefit amount—can continue to collect those spousal benefits and switch to their own larger retirement benefit at age 70.
• Anyone who was age 62 or older by the end of 2015 (born in 1953 or earlier), will still be able to restrict an application to spousal benefits at full retirement age of 66.
• No changes were made to survivor benefits for widows/widowers.

Does This Simplify Social Security Planning?

Though several strategies have been eliminated, the changes will make planning even more difficult. Now each person, including each spouse in a married couple, may be subject to a different set of rules. We believe that Social Security remains a foundation of retirement income which should be incorporated wisely into a financial plan. Expert help from your B|O|S team will identify the best strategy for your unique situation.

Sources: H.R. 1314 – Bipartisan Budget Act of 2015, Title VIII, Section 831;
“Congress Is Killing The File-And-Suspend And Restricted Application Social Security Strategies,” Michael Kitces, www.kitces.com, October 28, 2015