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Understand Social Security Benefits for Married Clients

Dec 15th 2015

Social Security claiming strategies for married couples have been curtailed by the Nov. 2, 2015 passage of the Bipartisan Budget Act of 2015, affecting both those who have options in claiming benefits and those who help in that planning process. Specifically, it affects those who had been considering file-and-suspend strategies or restricted application for spousal benefits.

The act reinforces the claiming of benefits on one's own Social Security record, if it is higher, by closing a loophole that some deemed “free money” for future recipients. The act did include a window to plan around the change, which may accelerate the filing for benefits among those still eligible to choose between filing on a spouse's record or his/her own. Recipients and advisors who planned on claiming strategies that have been eliminated need to revisit those plans and understand the following options.

File-and-Suspend Strategies

Anyone who has already reached full retirement age (FRA) and has pursued a file-and-suspend strategy will not be affected by the law change. Prior to the act, a qualified recipient who had reached FRA could file for his or her benefit and immediately suspend it. An eligible spouse could then file a restricted application for his or her spousal benefit. This strategy allowed one spouse to collect a spousal benefit while either or both suspending benefits earned delayed retirement credits (DRCs) on their future benefit (but not past age 70).

Anyone age 65 ½ as of the enactment of the law, and who will therefore reach FRA within 180 days after enactment, will retain the ability to use the file-and-suspend claiming strategy, but must do so before April 30, 2016, to be grandfathered under the old rules. A spouse who has reached FRA can then choose to collect on his or her own record or the spousal benefit, but by choosing the spousal benefit they earn DRCs on their own record by delaying. This may be beneficial when both spouses have similar earnings records. Only one spouse can collect a spousal benefit.

Anyone who turns age 66 after April 30, 2016, will still be able to suspend an application, but doing so suspends all benefits payable under that individual's earnings record, including a spousal benefit. This eliminates the strategy for married individuals described above. Further, prior to the act, a recipient filing and suspending could later file for their benefit going back to the suspended date. Now, the ability to receive a lump-sum payment of accrued benefits is limited to a maximum six-month retroactive reinstatement.

Restricted Application for Spousal Benefits

The change affecting the age criteria for filing a restricted application is different than that for file and suspend. Anyone born in 1953 or earlier, and who will therefore turn age 62 by the end of 2015, is grandfathered under the old rules and retains the ability to file a restricted application, regardless of when that filing may occur. When one files for benefits prior to FRA, the higher of the worker's benefit or the spousal benefit, if available, will be paid. Someone who is age 62 by the end of 2015 and waits until FRA to collect will continue to have the choice of filing on their own record or filing a restricted application on a spouse's record if that spouse already filed. This will delay filing on their own record, and they can accrue the DRCs.

Under the new rules, applicable to anyone born after 1953, there will no longer be an opportunity to file an application for Social Security benefits restricted to a spousal benefit. An application for retirement benefits filed by anyone not grandfathered is deemed an application for benefits under the individual's own earnings record or the spousal benefit, whichever is greater.

Ongoing Planning Considerations

The decision on when to claim is still a significant consideration. There is the alignment of benefit claiming between spouses of different ages, as well as the issues of cash flow and longevity expectations. In the short term, the recent legislation may require a review of financial plans for those clients who may have prepared for the claiming strategies that have now been altered. For some, the planning and claims may be accelerated. Options continue for those turning 62 by year-end, and those options should be understood. It is important to discuss these changes with clients and update financial projections and retirement expectations in accordance with the new Social Security regulations.

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