As you may have seen in the news recently, the Bipartisan Budget Act of 2015 is putting an end to two lucrative Social Security benefit filing strategies. The profitable strategies under fire are known as “file-and-suspend” and “a restricted application for spousal benefits”. Under certain scenarios, individuals can take advantage of these strategies if they take action by April 30, 2016. This deadline is causing a lot of headlines, confusion and questions among those eligible to receive Social Security benefits. Here is a summary of the changes:
Widow planning was not impacted at all.
The impact on planning for singles is very simple. Clients born on or before May 1, 1950, for whom the optimal strategy would delay benefits past Full Retirement Age (FRA), should file and suspend as soon as eligible — either immediately or upon reaching FRA. The suspension must be received by April 30 in order to fall under the old rules. Suspending benefits under the old rules should preserve the option to request a retroactive lump-sum payment should the client’s circumstances change while benefits are suspended.
The impact on planning for couples is nuanced. There are now three sets of rules:
- People born on or before May 1, 1950, (turning 66 for Social Security purposes in April 2016) — have access to both Voluntary Suspension that allows auxiliaries to claim as long as the request for Voluntary Suspension occurs on or before April 30, 2016. Restricted Application is available at FRA through age 70.
- People born on or after May 2, 1950, but before Jan. 2, 1954 — Voluntary Suspension also suspends benefits of other auxiliaries, including spouses and children, and an individual whose benefit is in suspense can’t receive spousal excess. This group still has access to the Restricted Application, FRA through age 70.
- People born on or after Jan. 2, 1954 — Voluntary Suspension also suspends benefits of spouse and children, and an individual whose retirement benefit is in suspense can’t receive spousal excess. This group no longer has the option to file a restricted application for spousal benefits.
The restricted-application changes also apply to people who are divorced. Under current law, a divorced individual who is 66 or older and was married at least 10 years but is currently unmarried can claim a benefit based on the ex-spouse’s earnings record while allowing his or her own benefit to grow.
But under the new law, only those who turned 62 this year or are older will be able to file to do this when they turn 66. Younger divorced people will receive either their own earned benefit or a spousal benefit—whichever is higher—instead of having a choice to take one and switch to the other later. You must be unmarried to get a divorced spouse benefit.
Source: Social Security Timing ®