May 18, 2016

With the passing of Bipartisan Budget Act last November, the Social Security “file and suspend” and “restricted application” strategies we discussed in this publication (Fourth Quarter, 2014) have changed. As a result, there has been a lot of information, and some misinformation, that has bombarded people who are nearing or in retirement, and we hope to shed some light on the subject. As with the original article, divorcee benefits are not covered here.

To determine what impact, if any, these changes have on your household, first understand that there is no change, regardless of strategy used, for those who have already filed for Social Security prior to April 30th of this year.

For those who will be filing in the future, the ability to suspend an individual worker’s benefits is still available for the purpose of earning delayed credits (at 8% per year for each year suspended until age 70), but the “file and suspend” strategy as discussed in our previous article is no longer viable. Family members (spouse and dependents) can no longer collect benefits off a “suspended” claim. Specifically, spousal benefits can now only be collected when the worker’s benefits are also being received. In addition, the ability to request a lump-sum reinstatement of benefits back to the original “file and suspend” date is no longer available.

The “restricted application” strategy for dual-income households remains in place for individuals who were 62 or older by December 31, 2015. When these individuals reach their full retirement age, and their spouses are either receiving their own worker’s benefits or were able to “file and suspend” before the April 30th deadline, they will be able to collect their spousal benefit while suspending their own worker’s benefit until age 70 (when it will be worth 132% of their full retirement age benefit amount due to 8% per year delayed credits). We refer you back to our original article posted on our website for more details about this strategy.

For those of us who didn’t turn 62 before the end of last year, we will be subject to “deeming” rules through age 70. This means that if we are entitled to both a retirement benefit on our own earnings record and a spousal benefit, we will not be able to file for one and delay the other. At the time of filing, we will be paid whichever benefit is the higher between the two. Remember, we can still delay our filing for earned credits, but once we file, we are locked into either our spousal or worker’s benefits.

Importantly, as clarified in an Emergency Message issued by the Social Security Administration on February 18th of this year (EM-16007), individuals may not suspend their own worker’s benefits and collect their surviving spouse benefit, even though retirement benefits and survivor benefits represent two different pots of money from the Social Security Administration’s perspective. When determining if one spouse (or both) in a dual-career family should delay benefits, individual health and family history obviously factor into this decision. Suffice it to say that every situation is unique and is something to discuss with your adviser.

Download Article: Social Security Rule Changes

See Previous Article: The Million Dollar Question: How Can Married Couples Maximize Social Security?

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