You may have heard the chatter about some Social Security loopholes being closed as part of the budget deal struck by House Republicans and President Obama. This is a basic summary of what these changes are and how they might affect you.
The two key Social Security strategies that will no longer be available to most are “File and Suspend” and “Restricted Application”, which have been used by married couples for years to increase their lifetime Social Security benefits. Because these unintended loopholes have become very expensive for the Social Security Administration, particularly as more and more people have been taking advantage of them, the strategies are being dropped.
File and Suspend allows one partner to file for Social Security but then immediately suspend collecting it, thereby accruing a higher benefit for later and making the lower-earning partner eligible to receive spousal benefits during the period prior to reaching age 70 when the full benefit becomes available. <>uThe new ruling makes this strategy unavailable starting May 1, 2016 (180 days after the passing of the Bipartisan Budget Act of 2015). However, if a person turns 66 on or before April 30, 2016, they will be able to file and suspend and have their spouse claim a spousal benefit (given the spouse is 62 before December 31, 2015.)
Restricted Application allows the spouse with a lower benefit to restrict collecting their own benefits, which allows them to receive the spousal benefit instead. The new ruling makes this strategy unavailable for any spouse not reaching age 62 by December 31, 2015. A person turning 62 by or on December 31, 2015 will be able to file a restricted application for spousal benefits when he or she reaches age 66.
If you are within six months of reaching your full retirement age and your spouse turned 62 by the end of 2015, there may be action you need to take ASAP — before you miss out on what could mean thousands of dollars in spousal benefits.
Talk to your financial planner today if you are not sure of your eligibility or how this change in ruling affects you. We are reaching out to our eligible clients to take action before the April 30, 2016 deadline.