ALERT: New Social Security Rules Mean Some Retirees Need to Take Action Soon

By Tom Carr, CFP®

President Obama’s recent signing of the Bipartisan Budget Act of 2015 enacted new rules for claiming Social Security benefits. It’s important to note that most of the benefits of Social Security will remain the same, but there will be some who need to move quickly to capture maximum lifetime benefits. Changes to benefits and filing limits stem from an effort to close perceived loopholes.

After May 1, 2016, individuals will no longer be able to “file and suspend,” and those who plan to file a restricted application for spousal benefits in lieu of their own worker’s benefit must have reached the age of 62 by the end of 2015. These claiming strategies allowed married couples to claim spousal benefits while earning delayed retirement credits, which increases future benefits.

Keep in mind, the calculations of worker, spousal, and survivor benefits will remain the same, but for a small percentage of households, the timing and coordination of spousal benefits will be limited. The bottom line is, individuals will no longer be able to claim benefits as a spouse and later change to their own worker’s benefits.

Here is one example of how a couple would have taken advantage of claiming their Social Security benefits prior to the new rules.

Mary is 63 years of age while her husband, John, has reached his full retirement age of 66. Let’s assume that both accrued the maximum Social Security benefit amount over their lifetimes. They have decided to wait to claim their own worker’s benefits until age 70 in order to increase their future monthly benefit amount. To do this, John would “file and suspend” at age 69 when Mary reaches her full retirement age of 66. This allows Mary to file a restricted application for spousal benefits for the next four years while continuing to delay and maximize her own worker’s benefit. Mary would then switch to her own worker’s benefit at the age of 70. Both Mary and John maximize their own monthly worker’s benefits, but in this scenario Mary would receive an additional four years of spousal benefits.

Under the new rules, Mary will not be able to switch from spousal benefits to her own worker’s benefit at a later date, and John would not be able to “file and suspend” his own benefits. The new rules prohibit both of the above claiming strategies that gave couples the opportunity to claim partial benefits while delaying and maximizing their worker’s benefits until they each reached age 70.

One Window of Opportunity Remains for Some, but Closes Soon

There is a grandfathering provision that works as follows.

  • If you are married, AND
  • You and your spouse have reached the age of 62 by the end of 2015, AND
  • You or your spouse will have reached the age of 66 by May 1, 2016,

you may have a one-time opportunity between now and May 1, 2016 to take advantage of certain Social Security claiming strategies.

As an example, in the case above, as long as John “files and suspends” by May 1, 2016, Mary can file a restricted application when she reaches the full retirement age of 66. Mary will be able to claim a spousal benefit at age 66 and later switch to her own worker’s benefit at age 70.

This may be the first time you’ve heard of Social Security claiming strategies. It’s fair to say for most of us that if we haven’t started taking our benefit already, we will claim Social Security when we reach full retirement age and forget about it. With proper analysis, however, you can give you and your spouse the best chance to maximize your Social Security benefits over your lifetimes. We have helped many clients establish a Social Security claiming strategy that increases their lifetime benefit. We would welcome the opportunity to help you with this important part of your retirement plan.

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1 Comment

  1. Warren Kelly

    Interesting article. Not sure my wife and I did not leave some SS $ on the table by not using “file and suspend”!
    Similar article on page C1 11/20 WSJ. Thanks for the info.

    Reply

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