Congress recently began to phase out file-and-suspend Social Security claiming strategies that married couples have used to maximize their lifetime benefits. The upshot is that married couples will be treated like singles: the combination claiming strategies are now generally eliminated. But if you are at least 62 in 2015 and you haven’t claimed Social Security then you may have some options during the phase out period.
Background on Social Security Claiming Strategy Changes
In 2000 Congress enacted changes to the rules on how and when to claim Social Security benefits. The changes enabled those who had already claimed to suspend their benefits and earn delayed retirement credits that could boost their Social Security checks by 8% per year.
But in the years since a cottage industry grew up to take advantage of these rules. The main strategy revolved around a concept called “file and suspend.” File-and-suspend is a way for couples, usually those with one higher-earning spouse and one lower-earning spouse, to boost their benefits from the program over their joint lifetimes.
The 2000 changes allowed one spouse to file for benefits at their full retirement age and then immediately suspend payment of the benefits. By doing so, the other spouse could become eligible for spousal benefits, and by suspending the suspending spouse would be able to wait until age 70 to earn delayed retirement credits. The file-and-suspend strategy helped the higher earning spouse by allowing a bigger payout later.
The file-and-suspend strategy often was used with a restricted application by the non-suspending spouse. In this example, a restricted application is one in which the other spouse (who was at full retirement age) files for spousal benefits, which are equal to one half of the benefit of the suspending spouse’s benefits. With a restricted application, the spouse could claim spousal benefits until age 70, at which time he/she could switch back to their own retirement benefit.
These strategies allowed one spouse to get spousal benefits and then ultimately a higher annual benefit. And as long as there was longevity in that spouse’s genes, this strategy allowed the couple to accumulate more Social Security benefits over a long life.
These strategies were better than the prior alternative, where if the “suspending” spouse wanted to earn delayed retirement credits by waiting until age 70, all related benefits were held hostage until that time as well.
Congress Acts to Phase Out These Strategies
Congress included a provision in the Bipartisan Budget Act of 2015 that stipulates that if an individual chooses to suspend benefits, then all benefits payable to that individual will be suspended, based on both his/her own earnings record (i.e., retirement benefits) and also based on any other person’s earnings record (i.e., spousal benefits). In addition, the provision adds that no other individual will be eligible for benefits based on the earnings record of the person who voluntarily suspends benefits.
These changes eliminate any type of restricted application strategy, because not only will the application rules require that if an individual is eligible for one benefit then both must be claimed, but for those who suspend a benefit, both must be suspended.
It also will no longer be feasible to file a restricted application, as any retiree who files for one benefit (retirement) is presumed to have filed for the other (spousal) benefit as well – regardless of whether it was/is an early benefit or at full retirement age.
The new rules for restricted application apply only to those who attain age 62 in any calendar year after 2015. Thus, those who are at least age 62 by December 31, 2015 will still be able to utilize a restricted application. Only younger folks – those who turn 62 in 2016 or later, which means those who would have been planning to engage in a restricted application in 2020 or later at their full retirement age – will lose access to the restricted application claiming strategy.
Congress granted the file-and-suspend strategy six months more of life. Thus, you can still file and suspend until April 30, 2016.
How Do These Changes Affect You?
If you have used the file-and-suspend strategy already and you are waiting to activate your benefits then you are okay. Your suspension and later reactivation will be honored when exercised.
If you are thinking of using the file-and-suspend strategy, you must do so before April 30, 2016. As discussed above, you are not eligible to use a “file and suspend” until you are at your full retirement age (age 66).
If you were thinking of using a restricted application in the future in order to claim spousal benefits and then later claim your own higher benefits and you are at least age 62 then you can still so. Remember that your spouse must have already claimed his/her benefits (or suspended them by April 30, 2016) when you file your restricted application.
If you were thinking you would file a restricted application and won’t be at least 62 years of age in 2015 then you are out of luck.
And for the rest of us… Anyone younger than 62 by the end of 2015 will not have the option of collecting spousal benefits early. If you are entitled to two Social Security benefits — on your own record and as a spouse — you will be required to file for all benefits at once and will be able to collect on the higher amount. You will not be able to claim a spousal benefit first as under current law and then switch to their own retirement benefit at age 70.
These same rules will apply to divorced spouses. If they are 62 or older by the end of this year, they will still be able to claim spousal benefits on their ex-spouse’s earnings record. Younger divorced spouses (not 62 in 2015) will not have that option.
Given these changes, it behooves workers to still try to claim their Social Security benefits as late as possible to boost their annual payments now that file-and-suspend strategies are being phased out.