By: Catherine E. Brown
Will you be at least 66 years old by the end of April? If so, you may want to plan for how to handle your Social Security benefits within the next few weeks. In November 2015, President Obama signed the Bipartisan Budget Act of 2015, which eliminates two Social Security planning strategies that have traditionally maximized people's Social Security benefits. However, due to a "grandfathering in" period, you may be able to qualify for benefits under the old law before the new law takes effect.
File and Suspend Strategy
The first change to Social Security benefits involves a strategy called "File and Suspend." Until now, the primary wage-earner could claim his or her Social Security benefits immediately upon reaching full retirement age, but then immediately suspend his own Social Security benefits and continue working until age 70. In the interim as the wage-earner would defer benefits, his spouse or dependent children could claim benefits based on his work record.1 Deferring his own benefits allowed the wage-earner to earn delayed retirement credits. These credits add up, yielding an eight percent increase per year of deferred retirement benefits, up to the time that the wage-earner turns 70.2
Under the new Act, this strategy will no longer be possible. This means that if you try to file and suspend after April 30, 2016, your spouse will be unable to get spousal benefits until you, as the wage-earner, claim your own Social Security benefits.3 Thus, there will no longer be a benefit to the file and suspend strategy.
Individuals born after April 30, 1950 are out of luck, and will need to plan their Social Security benefits under the new Act's provisions. However, the Act does not take effect until May 1, 2016, so if you were born on or before April 30, 1950, you can be "grandfathered in" under the old law. If you meet this age requirement, you should consider whether claiming your Social Security benefits between now and April 30th would be beneficial under the old "file and suspend" strategy.
Deemed Filing Rule4
The Bipartisan Budget Act of 2015 also expands the "deemed-filing rule," which limits filing options for married couples in which both spouses are wage-earners. When married wage-earners turn 62 years old, they become eligible for both their own worker's benefit, as well as a spousal benefit under their husband's or wife's work record. Before the Act, the government deemed that someone filing for either type of benefit between age 62 and their full retirement age was filing for the benefit option that would yield the higher monthly payout. However, if the married wage-earner waited to file until they reached full retirement age, they could choose whether they wanted to file for their own worker's benefit, or for spousal benefits. This meant that they could opt to receive spousal benefits until they became 70 years old, even if they were not as high as their worker's own benefits, thereby allowing their worker's benefit to accrue deferral credits and grow.
Under the new Act, however, the "deemed filing" program continues to be in place even after the married wage-earner reaches her full retirement age. In other words, individuals will always be deemed to have applied for the larger of the benefits, and can no longer choose to take the smaller spousal benefit for a few years to allow their own worker's benefit to grow. Despite this new provision, anyone who is at least 62 years old by the end of 2015 will be eligible to continue under the old rule, and may choose which benefit they wish to receive in order to maximize their Social Security benefits in the long term.
Fortunately, the Act does not change Social Security's basic eligibility requirements, so most people will not need to worry about the impending May 1st deadline.5 However, if you qualify for the "file and suspend" option and want to utilize its benefits, you must act within the month. We at The Peninsula Center are happy to assist you in answering any questions about these changes and in helping to determine if taking advantage of the "file and suspend" strategy in the upcoming weeks will be of benefit to you.
1 Emily Brandon, How the Budget Deal Changes Social Security, U.S. NEWS AND WORLD REPORT MONEY (Nov. 13, 2015, 3:55 PM), http://money.usnews.com/money/blogs/planning-to-retire/2015/11/13/how-the-budget-deal-changes-social-security.
2 Jamie Hopkins and David Littell, The State of 'File And Suspend': Where The New Social Security Rules Leave Seniors, FORBES (Nov. 4, 2015, 7:47 AM), http://www.forbes.com/sites/jamiehopkins/2015/11/04/the-state-of-file-and-suspend-where-the-new-social-security-rules-leave-seniors/#48f48e9430ce.