As part of the budget bill (H.R. 1314) to raise the U.S. debt limit, two key Social Security “loopholes” have been closed: file and suspend and restricted application for spousal benefits. The ban on file and suspend will start with suspension requests submitted 180 days after the enactment of the bill. The ban on filing a restricted application will apply to anyone who turns 62 in 2016 or later.
Depending on your birthday, this may affect your Social Security planning.
- If you are over 62 now (or will turn 62 before the end of the year), you may still file a restricted application for spousal benefits when you turn full retirement age. The ability to collect a spousal benefit while your own benefit builds delayed credits is considered one of those “loopholes” that only the “wealthy” are taking advantage of. It will be closed in four years. If you will be turning 66 over the next four years, you may still take advantage of it.
- File and suspend will be disallowed after six months from the enactment of the law. This popular strategy allows a husband, say, to file for his benefit to entitle his wife to her spousal benefit, after which he immediately suspends his 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 April 2016 there will effectively be no reason to file and suspend. Over the next six months, if you are eligible for this strategy (that is, you are over full retirement age and want your spouse to receive a spousal benefit while your own benefit grows to age 70), you will still be able to implement it. After that, it will be disallowed.
- If you are under 62 now (as of December 31, 2015), spousal strategies that take advantage of these closing loopholes will not be allowed. If you have been counting on spousal benefits for a higher earning spouse as part of your retirement income plan, you will need to take them off the table and consider other sources of retirement income.
It will now be more important than ever to maximize Social Security benefits by claiming at the appropriate time. Usually, this means delaying benefits to age 70 to build maximum delayed credits. This will generally provide you and your surviving spouse with higher lifetime income. If you are retiring earlier than age 70, we can help you consider sources of income during the bridge period, from retirement to age 70.