Spousal Social Security Strategies Eliminated
On November 2, President Obama signed into law the Bipartisan Budget Act of 2015, a piece of legislation that includes the elimination of two key Social Security retirement benefit claiming strategies. Referring to them as "unintended loopholes," the "file and suspend" and "restricted application" strategies were enacted in 2000 in an effort to encourage older workers to continue working. Instead, couples were using these features to boost the payouts they would receive over their lifetime by as much as $50,000.
Theses changes will go into effect April 30, 2016. Here is a breakdown of how you will be affected by these changes:
The Strategy: The "file and suspend" strategy allowed one spouse of Full Retirement Age (FRA) to file for benefits and then suspend receiving them, allowing the other spouse to begin receiving spousal benefits while allowing the "suspended" benefits to continue to grow.
The Change: If one spouse files for Social Security benefits and then suspends receiving them, the spouse's benefits are also suspended.
The Effect: Those who have already implemented the file and suspend strategy will continue to receive spousal benefits. If you are at FRA or older and are considering utilizing the file and suspend strategy, you must do so before April 30, 2016.
The Strategy: "Restricted application" strategy allowed an individual who is at FRA, has not filed for any benefits previously, and whose spouse has established a filing date to only file for the spousal benefit, based upon the spouse's record. This enabled the individual to delay filing their own benefits, allowing them to grow.
The Change: This new legislation eliminates the ability to "choose" which benefit you receive if you delay past FRA. When you file for benefits, you are assumed to be filing for your own retirement benefit first, and then you will receive a spousal benefit if you are eligible. There is no selection or switching on your end.
The Effect: If you delay filing for Social Security past FRA, you can no longer receive a spousal benefit in the interim. It is worth noting that individuals born in 1953 or earlier still have the ability to employ this strategy.
It is important to review your Social Security filing strategy with your financial advisor to discuss your options and whether or not these changes affect your plan.