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Window Closing for Social Security Rule Change Claiming Strategies
A pair of popular Social Security claiming strategies are coming to an end next month. In a surprise legislation announced late last year, Congress eliminated the File and Suspend and Restricted Application claiming strategies for maximizing Social Security benefits. Fortunately, the new rules don’t take effect until April 30th, so there is still a short window of time for those who are eligible to take advantage of the old rules.
Anyone turning 66 before April 30, 2016 can still file and suspend their Social Security claim – but you must file for benefits by the end of April. A few years remain before the Restricted Application option ends, as this strategy is still available for anyone born in 1953 or earlier. For all others, the new rules effectively kill both strategies.
File and Suspend window closing April 30th
File and Suspend allowed savvy planners to provide their spouse a benefit while delaying their own benefits to earn the 8% annual delayed retirement credit. At full retirement age you could file for social security benefits and immediately have your benefit suspended. Your spouse or dependent/disabled child was then eligible for a payment equal to 50% of your full benefit. All the while your benefit grows at 8% a year until age 70. This was generally a good strategy for couples including a primary breadwinner and a spouse who did not work outside the household, as it provided a payment stream while couples waited to maximize the primary earner’s benefit (and potential survivorship benefit).
Under the new rules released in the Bipartisan Budget Act of 2015, the suspension of social security benefits will now also suspend any and all benefits related to that individual’s earnings record. So if you wish to delay your benefits to earn additional retirement credits, your spouse will have to wait to claim spousal benefits as well. After April 30th, the entire File and Suspend claiming strategy will be eliminated.
If you have already filed and suspended to give your spouse access to benefits, the new rules have no effect. Anyone who is able to File and Suspend before the loophole is closed on April 29th 2016 will be grandfathered into the old rules. Under the old rules you must be 66 to be eligible to File and Suspend, so the window to take advantage is available to a “lucky” few who will be 66 by April 29th or earlier.
Restricted Application phased out over next several years
Like File and Suspend, the Restricted Application strategy was often used to maximize overall social security benefits for couples. Whereas File and Suspend allowed your spouse to earn income while your benefits are delayed, the Restricted Application provided you with a benefit based on your spouse’s earnings, with the option to switch to your own benefit after it had grown 8% each year until age 70. This was generally a good strategy for two higher-earning couples seeking to maximize benefits by waiting until age 70 to take their own payments while still earning a significant benefit based on their spouse’s record.
Under the new rules, when you apply for benefits you are deemed to have filed for both individual and spousal benefits. Standard rules deem that anytime someone applies for multiple benefits they simply receive whichever benefit is higher. Lost is the ability to apply for just one benefit (spousal) and switch to another higher-paying benefit later. Like File and Suspend, the Restricted Application strategy is now dead.
The ability to file a Restricted Application is being phased out over the next several years. The old rules are grandfathered in for anyone turning age 62 or older this year. If you have planned to file a Restricted Application in the future, you still can as late as 2019 when today’s 62 year-old reaches full retirement age of 66. If you’re already receiving benefits under a Restricted Application, the new law has no effect. Anyone under age 62 this year will no longer have the opportunity to file a Restricted Application.
How to act now while you still can
If you are turning 66 before April 30th, you can still File and Suspend to potentially maximize your social security benefits under the old rules. This strategy can provide couples with an income stream while they wait for the primary breadwinner’s benefit (and survivorship benefit) to grow by 8% each year.
In order to File & Suspend, you can file online at www.SocialSecurity.gov, by phone (800-772-1213), or in person at your local Social Security Administration office. As we’d expect Social Security Administration representatives to be busy and potentially overwhelmed with a flood of filers, prepare yourself with a detailed and written plan about which social security claiming strategy is right for you before you call.