Two Social Security strategies that many married couples have been using to maximize their benefits are being eliminated, as a result of the federal budget deal that President Obama signed into law in November.
In the past, these strategies could be worth tens of thousands of dollars over a lifetime for some couples. The fact that they are being phased out means that many seniors should take action now, before the changes take effect, to reduce the impact. Other seniors may need to reconsider their long-term retirement plans.
The strategies that are being eliminated are:
#1. File and Suspend.
Generally, seniors who wait to claim Social Security benefits get a larger benefit when they eventually do file. So in many cases, it makes sense to wait. A problem, though, is that even if a senior waits to file, his or her spouse may want to apply for spousal benefits right away – and a spouse can’t apply for spousal benefits unless the senior has already applied for his or her own benefits.
In the past, there was a way around this, called “file and suspend.” The senior would file for benefits at full retirement age (currently 66 in most cases), but immediately “suspend” them. This allowed the senior to delay his or her own benefits up to age 70, and get a larger check at that time, while enabling the senior’s spouse to apply for spousal benefits right away.
This “file and suspend” technique will be outlawed as of April 30, 2016.
Under the new law, a senior’s spouse cannot begin receiving benefits until the senior is actually receiving benefits, too. Workers can still file and suspend, but spouses (or other dependents, including minor and disabled children) cannot receive benefits during the suspension.
Importantly, the new law doesn’t affect workers who have already filed and suspended benefits – so if you’ve already used this technique, you won’t be affected.
And even more importantly, seniors who are at least 66 – or who will turn 66 before April 30, 2016 – may still use the technique, as long as they do so before April 30. So if you’re in that situation, you should contact a lawyer right away, to see if you can take advantage of this strategy while there’s still time.
#2. Claim Now, Claim More Later.
A second strategy was available in the past for seniors who wanted to claim benefits at their full retirement age. Under this strategy, a higher-earning senior could file and claim only spousal benefits, while delaying claiming benefits based on his or her own work record. Then at age 70, the senior could switch, discontinuing the spousal benefits and claiming benefits on his or her own record – which would be larger because the senior waited to claim them.
This technique was known as “claim now, claim more later.” It is also being eliminated by the new law.
However, if you were at least 62 years old at the end of 2015, the good news is that you will not be affected and you’ll still be able to use the technique.
As for individuals who were 61 or younger at the end of 2015, when they apply for spousal benefits, Social Security will assume that they are also applying for benefits based on their own work record. These workers will be eligible for whichever benefit is larger, but they will not be able to just take the smaller spousal benefit and allow their own benefits to keep increasing until age 70.
Importantly, this change does not apply to survivor’s benefits. A surviving spouse will still be able to choose to take survivor’s benefits first, and then switch to retirement benefits later if the retirement benefit is larger.
Again, this could be a very good time to contact your lawyer to see if your retirement strategy needs to change as a result of the new rules.