Social Security Loopholes Close
Understanding your Social Security benefits is an important piece of your overall retirement strategy. With the laws governing Social Security a regular subject of debate, it is no wonder that many of us are left with questions and uncertainty.
The recent Federal budget deal created substantial changes to the claiming strategies of Social Security benefits. Retirees will no longer be permitted to use certain claiming strategies to increase the amount of money they collect. With longer life expectancies, this could cost retirees and potential retirees thousands of dollars in lost benefits.
These unintentional loopholes in claiming strategies originally formed when Congress passed the Senior Citizens Freedom to Work Act in 2000. Provisions of the law allowed married couples to use “restricted application” strategies to increase their monthly benefits.
Restricted Application Strategies: How they worked and how they'll change
One of the restricted application strategies was known as "file and suspend." With this strategy, the spouse with the higher Social Security benefit filed for his/her benefit at Full Retirement Age and then immediately suspended, allowing their own benefit to grow with additional Social Security retirement credits until age 70. Additionally, because the higher benefit spouse filed, the lower benefit spouse became eligible to file for a spousal benefit.
Under the new law, only those who are Full Retirement Age by April 30, 2016, will be “grandfathered” and allowed to continue using the "file and suspend" strategy. Those who are not Full Retirement Age by April 30, 2016, are no longer able to claim their benefit in this manner.
Other restricted application strategies permitted workers who were eligible for a spousal benefit to file for it only at Full Retirement Age. The benefit was then based upon their spouse’s work history, allowing their individual benefit to continue growing. At a later date, they could switch from the spousal benefit back to their own, larger benefit. This allowed the spouse to claim spousal benefits of up to 50% of the worker’s overall benefit.
Now, any retiree who files for either their own benefit or their spousal benefit will be deemed as filing for both at once, meaning their individual benefit will no longer grow through additional Social Security credits. Only workers born in 1953 or earlier are “grandfathered” and will still be able to utilize this strategy.
What hasn’t changed?
Widows and widowers can still file a restricted application for survivor benefits while their own benefit builds delayed retirement credits. Additionally, this doesn’t mean that couples can’t coordinate their Social Security strategies! You can learn more and calculate your Social Security benefit by visiting www.ssa.gov.
Remember, filing for Social Security benefits requires careful planning. Understanding the impact of legislative changes is a crucial part of that planning strategy.