On November 2, 2015, President Obama signed into law a federal budget agreement that will throw a wrench into retirement plans for many married couples. Two different Social Security “strategies” will take the brunt of it: file-and-suspend and restricted application.
What is file-and-suspend?
If you were born between 1943 and 1954, your full retirement age (FRA) is 66. Once you’ve reached this age, you’re eligible to receive 100% of your Social Security retirement benefits. Now, once you’ve applied for these benefits, you can immediately choose to suspend the payments. This results in what are known as delayed credits, which allow your Social Security benefits to increase by 8% annually until age 70. That’s a total of 32% growth. However, there’s more to it. This “loophole” allows your husband or wife to start collecting spousal benefits based on your earnings record in the meantime.
It was completely legal, and it helped couples gain some extra cash while the Social Security benefits grew, but this incredibly beneficial scenario will no longer be obtainable going forward – at least not after six months. If you are 66 right now or will be before May 1, 2016, you can still take advantage of this strategy, and if you’re already “filing and suspending,” your benefits will not be impacted. However, in the future, people can only claim spousal benefits if their spouse is actively receiving Social Security payments.
What is restricted application?
An equally as popular Social Security strategy is known as a restricted application, or “claim now, claim more later.” If married, and at full retirement age, you have the option to apply for, and take, your spousal benefits while leaving your own retirement benefit untouched (for now). This lets you earn those delayed credits that tack on 8% each year to your retirement benefit until age 70, then you can switch over from the spousal benefit to the larger retirement benefit.
For this to work, your spouse needs to have filed for their own retirement benefit as well, assuming you both have worked. Be sure to make it clear on the form that you’re “restricting” the application to the spousal benefits and want to delay your retirement ones. The use of this strategy is to more so maximize your lifetime benefits, as opposed to monthly. It’s been a go-to strategy for working couples, but just like file-and-suspend, will no longer be available by mid-2016.
How will this affect me?
In short, file-and-suspend lets you opt out of immediate benefits in order for them to grow, while your spouse receives benefits in the process. Restricted application provides the same growth for your retirement benefit, but also offers you your own spousal benefit during the four years of waiting. Both of these Social Security strategies were well-used, but will soon be obsolete.
If you’re currently using one of the above, you will be automatically “grandfathered” in, so don’t worry. However, those that were planning on taking advantage may need to rethink their retirement benefit options. Without the clever strategy to obtain “free” spousal benefits, decisions on when to claim just might have gotten a lot simpler.
If you have questions about retirement and Social Security benefits don’t hesitate to contact us, the elder law experts, at the Law Office of Christina Lesher, PC. Reach us at 713-529-5900 or submit a form on our website and we’ll get back to you as soon as we can.