Shortly after 12:00 noon on Monday, November 2, 2015, the President signed the two-year budget bill into law. The bill contained some amendments to the Social Security Act that will curtail some claiming strategies that have been both useful to and popular among individuals and couples across the socioeconomic landscape.
How the Rules Were Changed
The changes focus on two areas:
- Deemed filing rules, including the restricted application for spousal benefits only
- Voluntary suspension rules, including the file and suspend technique
The current deemed filing rules provide that if you apply for any retirement benefit before reaching Full Retirement Age (FRA), you are deemed to be applying for all retirement benefits for which you are eligible. This means that if you file for your own retirement benefit and are also eligible for a spousal retirement benefit, or vice versa, you will be treated as though you applied for both. In other words, you cannot restrict your application to one or the other.
However, once you reached FRA, you could file an application restricted to spousal benefits only, which would allow you to receive some spousal benefits while your own benefits were growing at 8% per year.
The new law extends the deemed filing rule to age 70, thus eliminating the ability to collect spousal benefits while allowing your own benefits to grow.
The current voluntary suspension rules allow you to suspend your benefits after you reach FRA. This includes situations where you might file an application for your benefits and then immediately suspend payments.
Why would anyone want to do this? Because Social Security rules have long provided that no one can claim benefits on your record (while you are alive) until you have filed an application for benefits on your own record. For the past 15 years, the rules have permitted other family members – such as your spouse, dependent minor child, disabled adult child, or dependent parent – to receive benefits on your record even though you had suspended payments.
The new law provides that when you suspend your benefits, no one may claim benefits on your record until you begin or resume receiving payments. A person who has filed for his or her own benefits can still suspend after Full Retirement Age, but only for the purpose of increasing their benefits.
Effective Dates and Opportunities
Although most of the advantages of file and suspend will no longer be available once the law takes full effect, and the ability to file a restricted application for spousal benefits only will also be lost for many, there are some silver linings to be found within the grandfather provisions of the new law:
Deemed Filing/Restricted Application for Spousal Benefits Only:
- Spouses (and divorced spouses) who were born on or before January 1, 1954, will be exempt from the new rules governing deemed filing and restricted application.
- If you qualify for grandfathering, as just described, you will be eligible to file a restricted application between ages 66 and 70, provided that (a) your spouse has filed for his or her own benefits; and (b) if your spouse has suspended benefits, he or she has done so within the period described in the section below. [Note: if you are otherwise eligible for divorced spouse benefits, it does not matter whether or not your ex has filed or if his or her benefits are in suspension, as long as your ex is at least 62.]
- If under the grandfather, you file for your own benefits before 66 and your spouse subsequently files for his or her own benefits, you will not be deemed to have filed for spousal benefits.
Voluntary Suspension of Benefits:
- The new provisions regarding voluntary suspension of benefits will not apply to you if you have filed for your benefits and requested suspension before April 30, 2016.
- To take advantage of this opportunity, you would need to have been born on or before May 1, 1950.
- If you are successful in suspending your benefits before the effective date of the new rules, then the following people may be eligible to claim on your record while your benefits are under suspension:
- Your spouse who attained age 62 on or before January 1, 2016
- Your spouse who cares for your minor or disabled adult child
- Your minor or disabled adult child
- Your dependent parent
Recommended Action Steps:
- If you or your spouse were born on or before May 1, 1950, have an analysis done by a professional to determine whether or not it is to your advantage to suspend during the 180-day window that closes on April 30, 2016.
- File and suspend can have negative consequences for a couple’s overall benefit situation; don’t do it without good reason.
- Even if file and suspend produces positive results for a couple, there may be superior options available.
- If you or your spouse were born on or before January 1, 1954, have an analysis done by a professional to determine whether and under what circumstances it would be to your advantage to file a restricted application. Remember that the deemed filing rules under the old law continue to apply before you turn 66.
- If neither you nor your spouse is eligible for grandfathering based on your dates of birth, opportunities for creative benefit claiming may not be quite as plentiful as they were before these changes. However, the gap between the claiming strategy that fits you best and one that fits you least well could still amount to many, many thousands of dollars. Have an analysis done by a professional to see the full spectrum of claiming strategies that could work best for you.
Peter M. Weinbaum, JD