Our prior articles in this e-newsletter have explained how a spouse or disabled adult child of someone who files for Social Security benefits can begin receiving an auxiliary benefit in addition, even though the filer “suspends” his payment and chooses not to begin receiving it immediately.  The new federal budget deal has ended that opportunity, and many families will lose the substantial additional benefits formerly available through this strategy.
As noted in our December 2014 article entitled “Timing Social Security Retirement Can Increase Benefits for Life,” the longer one waits to claim Social Security Retirement, the higher the monthly benefit.  In the extreme, claiming at 70 instead of at the earliest age of 62 can raise lifetime monthly benefits by 76 percent.  Yet 62 remains the most popular age to start taking benefits.  This growth of benefits, coupled with the “file and suspend” and “restricted application” features in prior law, have made it possible for more than one family member to receive Social Security payments on a single filing, even where the filer has chosen not to receive payment until later.  The Bipartisan Budget Bill 2015, which has passed both House and Senate and will be signed into law by President Obama, has terminated those features.
File and Suspend Strategy
The “file and suspend” claiming strategy will cease to exist 6 months after passage of the Bill.  This claiming option involves one spouse, usually the higher earner but not always, filing for benefits but immediately suspending payment. The purpose was to allow the worker’s spouse to begin a spousal benefit while the worker’s benefit continued to earn delayed retirement credits on his own record.
With the new legislation, when a client suspends his benefit, all benefits paid from his record are also suspended.  Previously, a beneficiary could suspend benefits while a spouse or young children could continue collecting a benefit from his record.  The new legislation will require that a beneficiary be receiving his or her own benefit in order for other benefits to be paid from his record.
The new legislation will leave on the table the ability to suspend benefits for the purpose of accruing delayed retirement credits.  So if you file early and later decide it was a mistake, you can suspend benefits at full retirement age and accrue delayed retirement credits.  However, any other benefits being paid from your suspended benefit will stop.
Anyone who has already claimed benefits with a file and suspend strategy, or anyone who implements such a strategy within the next 6 months, can continue with their strategy.  Therefore, if you will reach age 62 in the next 6 months and may wish to employ the “file and suspend” strategy in order to allow your spouse or disabled child to draw an auxiliary benefit, you must do so timely.
Restricted Application
The other major change with the passage of new rules is the elimination of the “restricted application.”  Restricted application allowed a spouse who had attained full retirement age, who was also eligible for his or her own retirement benefit, to collect only a spousal benefit.  At a later date, usually age 70, the spouse would switch to his or her own retirement benefit which would have grown to its maximum with delayed retirement credits.
The new legislation extends a concept called “deemed filing.” Deemed filing has only been a factor before reaching full retirement age.  Prior to reaching full retirement age, if a client filed for any benefit, he or she was “deemed to be filing” for all benefits. This meant that if a client was eligible for his or her own benefit and a spousal benefit, he or she would only be paid a single benefit – the equivalent of the higher of the two.  But if the individual waited until full retirement age to claim a benefit, he or she could choose which benefit to receive. If the choice was made to receive a spousal benefit, his or her own retirement benefit would continue to grow with delayed retirement credits. The new rule extends the deemed filing provision to age 70, meaning that the payable benefit will always be the higher benefit if eligible for more than one.
There is one small concession in the new legislation. The new rules around restricted application apply only to individuals who attain age 62 after 2015.  For those who achieve age 62 prior to 2016, it remains possible to file a restricted application (for spousal benefits only) at full retirement age.  However, this option is being effectively “phased out” over the next four years.
Widows and Divorced Benefits
Nothing in the legislation mentions widows benefits, and many believe the strategies available to widows remain unchanged. It will still be possible for a widow to begin a widow benefit and switch to his or her own retirement benefit at a later date or vice versa.
Divorced benefits seem to have suffered what some are calling an unintended consequence of the legislation.  As of now, since filing a restricted application will not be available for anyone reaching age 62 after 2015, divorced individuals will not able to use this option unless they fall into the grandfathered group who will already be aged 62 by the end of 2015.
Need for Immediate Action
With these planning strategies scheduled to vanish quickly, it is imperative that you call us or a Social Security planner immediately in order to ensure that you and your dependents receive the full benefits to which you may be entitled.  Contact us or call us today at 601-987-3000.