As part of last year’s Bipartisan Budget Act of 2015, Congress approved some major changes to Social Security that could impact your benefits. Designed to eliminate “loopholes,” the new rules will mostly impact married, dual-income couples. It is estimated that couples could stand to lose as much as $60,000 in benefits as a result of these changes.
The “File and Suspend” Strategy
The biggest change is the elimination of the popular “file and suspend” strategy. Leveraging this strategy, an individual could file for benefits at full retirement age, then immediately suspend payments. The spouse could then file to receive a spousal benefit, which could equal half of the benefit amount of the spouse who had suspended the benefit. This strategy allowed for a payout of benefits to the household, while both individuals still continued to grow benefits until age 70 at the rate of eight percent per year.
Under the new law, spousal or dependent benefits can only be collected once the filer has started collecting their Social Security benefits. There are exceptions, however. Anyone born on or before May 1, 1950 is still eligible to file and suspend. Executing this strategy will permit others in the household to become eligible to collect benefits based on the individual who has filed. To do so, paperwork must be submitted by April 29, 2016.
The “Restricted Application” Strategy
Another change eliminated the ability for dual-earner couples to effectively double-claim. Under this loophole, a spouse could choose to file to collect only a spousal benefit upon reaching the full retirement age, then later switch to their own benefits, which will most likely be higher due to delayed claiming (at a rate of eight percent per year until age 70).
Under the new law, anyone born after January 1, 1954 will no longer be allowed to start collecting a spousal benefit upon full retirement age and delay collecting their own benefit. Those born before this date can continue to file for a spousal benefit at their full retirement age and defer their individual benefit to a later time.
Also, the changes won’t necessarily apply to a widow or widower. A surviving spouse could still claim a survivor benefit and defer his or her own retirement, provided the survivor has not already filed to receive benefits.
Determining the maximum possible Social Security benefits for a household can be quite complicated, depending on age, life expectancy, age disparity, income and other factors. Social Security can be an important part of your retirement income, so it’s a good idea to discuss your Social Security strategy with your financial advisor to see how it may impact your long-term goals. iBi
Cathy S. Butler, CFP, CRPC is a financial advisor with the Butler/Luthy Group of Morgan Stanley. For more information, visit www.morganstanleyfa.com/thebutlerluthygroup.
