The Bipartisan Budget Act of 2015 made some significant changes to two social security claiming strategies: “file and suspend” and “restricted application.” If you will turn, or have turned 66 on or before April 30th, 2016, there is a deadline coming at the end of April that you should be aware of.
Strategy 1 – Changes to “file and suspend”
Under the old “file and suspend” law, at your Full Retirement Age, you could file an application for social security benefits and immediately suspend the benefits. The primary reason you may have exercised the “file and suspend” is so that your spouse could begin collecting based on your benefit (as long as he/she was age 62 or older) even though your own payments were being suspended. Under the new law, at your Full Retirement Age, you can still “file and suspend,” but if you do, your spouse will no longer be able to collect if you have asked your benefit be suspended.
This new law will not affect anyone who has already “filed and suspended,” as they are grandfathered in. And anyone who turns 66 on or before April 30th of this year AND who “files and suspends” before April 30th of this year will also be grandfathered in. If this is/was a strategy that you were considering, and if you will be 66 before April 30th, you must notify the social security administration by April 29th by filing and application and noting in the remarks section that you would like to suspend your benefits. As long as you file the application with the note to suspend by April 29th, it is our understanding that request will be honored and you will be grandfathered in. Applications can be filed at www.socialsecurity.gov.
Strategy 2 – changes to “restricted application”
The changes to the “restricted application” strategy are not as urgent, as they do not go into affect until the end of 2019. The changes to this strategy only affect married or divorced couples. This strategy allowed someone at Full Retirement Age to file an application to only collect a benefit based on his/her spouse (not his/her own benefit). The spouse that filed the restricted application would let his/her own benefit grow by 8% per year until 70, and collect based on his/her spouse in the meantime.
For this change, there is a more generous grandfathering period. You will have the opportunity to file a restricted application as long as you were born January 1, 1954 or earlier. In other words, you have to be 63 or older by the end of calendar 2016 to still implement this strategy. Said differently, after January 1st of 2020, your only option will be to collect your own benefit or 50% of your spouses, whichever is greater. If you will be 63 or older by the end of 2016 and you plan to use the “restricted application” strategy, there is nothing you need to do at this time. You just file the restricted application at your full retirement age.
This is complicated stuff, please call is if you have any questions or would like to discuss further.