The Bipartisan Budget Act of 2015 brought significant changes to the way individuals and couples can claim their Social Security benefits. The bill’s intent is to close claiming “loopholes” that allow people to use a combination of claiming strategies to maximize their Social Security benefits. One of the most popular strategies, “claim now, claim more later” for married couples is being eliminated. Under this strategy, an individual can defer taking their own Social Security benefit until age 70 and earn the highest possible payment for the remainder of their lifetime. Deferring means waiting until 70 to receive any money from Social Security. However, by using a combination of ‘file and suspend’ and ‘restricted applications’ you can draw a Social Security check prior to age 70 through your spousal benefit without your record being affected. This strategy will be eliminated. We have aggressively implemented this strategy with clients to earn extra Social Security income that has helped them reach their retirement goals.
Lawmakers have decided to grandfather those utilizing these strategies currently and individuals will continue receiving their checks unaffected by the new bill. They have also created a six-month grace period for individuals who qualify to take advantage of the claiming strategy. The ‘file and suspend’ and ‘restricted application’ along with other Social Security timing strategies can be complex and require careful consideration. Below are examples of how individuals may be affected by the new legislation. However, if you are nearing or over age 62 and have not considered your options for Social Security, now is an important time to do so as you will have fewer options after April 30, 2016.
If you are at least 66 or will turn 66 before the effective date of the new law, April 30, 2016, you may still be able to file and voluntarily suspend your benefit without adverse effects on others claiming on your record. In combination with this, if you would like to file a restricted application, meaning selecting only spousal benefits while allowing your own benefit to grow, you must have attained age 62 by the end of 2015. After the new law you will no longer be able to draw only spousal benefits while allowing your benefit to grow until age 70.
Those qualified for retirement benefits (over age 62) with dependents under the age of 18:
Since voluntary suspension of your benefits after the six-month grace period ends will suspend benefit payments for all individuals, including dependents under the new law, claiming strategies for dependent benefits will be affected. However, if you are or will turn 62 before April 30, 2016 and have dependents under the age of 18, you should consider the options to claim benefits while suspending your own before the window closes.
Widows and Widowers:
Survivor’s Benefits under Social Security will not be affected by the new legislation. Anyone claiming or planning to claim survivor’s benefits will be able to do so without reducing their own records. There are timing strategies that should be evaluated to maximize your Social Security if you are a widow or widower.
Those who had been married for more than 10 years and have not remarried have the option to draw divorced spouse benefits for their ex-spouses earnings record regardless of the status, drawing or suspended. Given the new law, those drawing on ex-spouse earnings would be affected if their ex-spouse suspends their benefit. However, this is an unintended outcome expected to be fixed by Congress before the grace period ends as to not harm divorced spouses with the new rules.
If you or anyone you know will be affected by the changes to the rules around claiming Social Security benefits, now is the time to analyze your options and determine which claiming strategy is best for you.