The impending disappearance of two popular Social Security filing strategies in May 2016–“file and suspend” and “restricted application”–could force big changes to the retirement plans of potentially millions of retirement-age married couples and divorcees.
If you’re currently receiving Social Security benefits, you likely will not be affected by the prospective changes to rules. However, when the rules change in May, millions of couples could lose the ability to benefit from some combination of the two strategies.
Before the rules changed, married couples could employ one or both of two strategies to boost their retirement income significantly:
File and suspend: With this strategy, the higher earner, who must have reached full retirement age (FRA), files for Social Security benefits and immediately suspends receipt of the benefits. Because the higher earner filed, the lower-earning spouse is able to claim a spousal benefit. This strategy benefits the couple as each spouse’s benefit earns 8% per year in delayed retirement credits until they individually claim their higher benefits.
Restricted application: With this strategy for a couple, the lower earner, who must be between age 62 and FRA, files for Social Security benefits, enabling the higher earner, who must have reached FRA, to file a restricted application for spousal benefits. The higher earner’s benefits continue to grow at 8% per year in delayed retirement credits until age 70. When the higher earner files for full benefits, the spouse can suspend collecting his or her own benefit and switch to a spousal benefit.
Because of grandfathering provisions in the rules, with planning, some couples and ex-spouses can take advantage of the about-to-be discontinued strategies. Here are four possibilities:
1. File and suspend: If you will reach full retirement age by April 30, 2016, you can file and suspend. Make sure you suspend before the deadline, or you and your spouse will reap the negative consequences of the changes to the rules.
2. Restricted application if age 62: If you will reach age 62 by the end of 2015, you may file a restricted application to collect a spousal benefit to be received at FRA. You will be able to collect that benefit at any time in the future, regardless of whether your spouse is collecting a benefit or has suspended it.
3. Restricted application if at FRA: If you will reach FRA before Jan. 1, 2016, you can use this strategy. Make sure you specifically file a restricted application or the Social Security Administration will determine that you are filing for all benefits currently available to you.
4. Divorced individuals: If you are at least 62 years old by the end of 2015, you still will be able to file a restricted application for an ex-spousal benefit to be received at FRA. You may switch to your own benefit when you reach age 70. Proceed with caution: Under current law, as long as your ex is at least 62 years old, you can collect even if your spouse is not collecting. The new rules are not clear about this.
Not all of the grandfathering rules require immediate action. But don’t ignore them–in some cases, you need to do something to take advantage of the strategies before they disappear.
Because everyone’s situation is unique, speak with a financial professional to learn the strategy that will work best for you. Learn more about investment benefits from Liberty Savings online, by phone, or at any branch.