Ready or not, Social Security changes go into effect this spring

February 24, 2016

The Bipartisan Budget Act of 2015, which was signed into law on November 2, 2015, outlines changes to certain Social Security (SS) filing strategies used by retirees. As the Social Security Administration recently announced, the grace period for some of these changes expires after April 29, 2016. The two strategies affected are the file and suspend strategy and filing a restricted application for spousal benefits.

The end of file and suspend

Under the new rules, most retirees will not be able to file for and immediately suspend their own SS retirement benefit, allowing their spouses to receive a spousal benefit while deferring their own until they reach age 70. This change will prevent the retiree's spouse (and possibly his or her qualifying dependents) from receiving SS income through a spousal/family benefit while delaying the retiree's benefit for later—an especially attractive option because delaying a benefit from full retirement age (FRA) through age 70 allows you to take advantage of an 8%-per-year delayed retirement credit, which can add up to a 32% increase in your monthly benefit amount. (Full retirement age is the age at which you're first entitled to full or unreduced SS benefits. Your FRA depends on your birth year.)

Retirement of restricted application

"If you're married, you may be entitled to your own SS retirement benefit—based on your own earning history—and a spousal benefit—based on your spouse's earning history," Ms. Youssef said. "Under the new rules, if you file for SS benefits between the ages of 62 and 70, you'll collect all the benefits you're entitled to, meaning you can no longer pick and choose between your own retirement benefit and a spousal benefit. SS will pay the higher amount of the two."

Restricted application allows a retiree to collect only a spousal benefit until a later date, up to age 70, at which point the retiree would swap the spousal benefit for his or her own retirement benefit, which would've grown to its maximum with the 8%-per-year delayed retirement credits. Under the new rules, most retirees won't have the option to file a restricted application upon reaching FRA unless they attained age 62 on or before December 31, 2015. (See the eligibility details below.)

"You can still file for your SS benefit at age 62 and suspend it from the time you reach FRA through age 70, allowing you to receive the 8%-per-year delayed retirement credits on the reduced SS retirement benefits. This is what is referred to as the 'start-stop-start again' strategy, which is commonly used by retirees who return to work later in retirement or begin collecting a pension benefit from an employer," said Ms. Youssef. "What has changed is the fact that while your benefits are suspended, all benefits paid on your earning record are suspended—your spouse or young children won't be able to collect a benefit from your record if you're not receiving your benefit."

Understanding your eligibility

While the elimination of these two strategies may reduce the total benefit certain retirees receive over the course of their lifetime, the intent of the Bipartisan Budget Act of 2015 is to close a loophole—in other words, eliminate two "aggressive claiming strategies"—that jeopardizes the long-term sustainability of the Social Security program.

If you're already using the file and suspend strategy or have filed a restricted application for spousal benefits, the new law won't impact you. For everyone else, the impact depends on your age:

• If either you or your spouse is 66 or will turn 66 by the effective date (within 180 days after November 2, 2015), you're grandfathered into the file and suspend strategy—but you may need to file for and suspend your benefits on or before April 29, 2016.
• If both you and your spouse are younger than 66 by the effective date, you don't qualify for the file and suspend strategy.
• If you reached age 62 by December 31, 2015* or were older, you'll still be able to file a restricted application to receive just your spousal benefits at your FRA, as long as your spouse is receiving his or her own retirement benefits—or has filed for and suspended—benefits by the effective date.
• If you reached age 62 by December 31, 2015*, and you're qualified for divorced spousal benefits, you'll be able to file a restricted application at FRA, as long as your former spouse is also receiving—or has filed for and suspended—benefits by the effective date.
• If you weren't age 62 by the end of 2015, you won't be able to file a restricted application for spousal benefits when you reach FRA.
• If you're a widow or widower (even if you were divorced before your former spouse died), these changes don't impact your ability to file and suspend or restrict your application to coordinate with your own SS retirement benefits.

*Someone born on January 1, 1954 or earlier attained age 62 as of December 31, 2015.