Recently, Congress was able to avert government shut down through the enactment of the Bipartisan Budget Act of 2015 (H.R. 1314) that called for an increase in the U.S. debt limit, which the President signed into law on November 2nd. Through a series of negotiations about raising the debt ceiling, two Social Security strategies that we have previously advocated are being revoked:
- Restricted application for spousal benefits
- File and suspend
In the past, restricted application allowed for spouses of individuals already receiving benefits to receive up to one half of their partner’s benefit, if 50% of their spouse’s benefit exceeded the total of their own.
File and suspend allowed for a spouse to file for Social Security and immediately suspend their benefits. This enabled the spouse who did not file to receive half of their partner’s benefit until the age of 70, at which time they began receiving their own benefit.
The door on these policies is not shutting immediately, but will occur over the course of 2016. There are three phases of implementation of the Social Security filing strategies with the passing of the budget bill.
What Happens If You Are Over the Age of 66 ½ by April 30, 2016?
For the next six months through approximately April 30, 2016, you can continue to take advantage of the existing strategies. Anyone over Full Retirement Age (FRA) can file and suspend and allow their spouse to claim a spousal benefit, now or later. FRA is determined by the Social Security Administration. Typically, FRA is declared once you are between the ages of 66 and 68, depending on your birth date. Until April 30, 2016, any individual over the FRA can file a restricted application for spousal benefits. After that, it will be disallowed.
If you are under 62 years of age as of December 31, 2015, spousal strategies that take advantage of file and suspend and restricted application for spousal benefits will be disallowed.
What Happens If You Are Under the Age of 66 ½ by April 30, 2016?
Through 2019, no spousal benefits can be claimed on benefits suspended. Therefore, in order for a wife to receive benefits based on her husband’s work record, her husband must have filed his benefits AND be receiving his own Social Security benefit as well.
After 2020, no file and suspend or restricted applications will be allowed in order to collect spousal benefits.
Depending on your age and birthday, these implementations may affect your Social Security planning.
Restricted Application
The ban on filing a restricted application applies to any individual who turns 62 years old in 2016 or later. If you are over 62 years of age now (or will turn 62 before December 31, 2015), you may still file a restricted application for spousal benefits to be received when you reach FRA. The ability to collect a spousal benefit while your own delayed benefit builds credit (i.e. an additional 8% per year until age 70), will be closed in four years.
File and Suspend
The ban on file and suspend will go into effect for all suspension requests submitted 180 days after enactment of the Bipartisan Budget Act of 2015. Previously, this popular strategy allowed for a spouse to file for his or her benefit in order to entitle a partner to the same spousal benefit, after which he/she immediately suspended the benefit to build delayed credits. While voluntary suspension will still be allowed, no spousal or dependent benefits may be paid based on a suspended benefit. After approximately April 30, 2016, there will be no effective reason for either spouse to file and suspend.
While actions must be taken in order to isolate direct spending in the United States, the result of such a bill is shutting the door on a profitable retirement planning strategy that once benefited hundreds of thousands of eligible individuals.