When Con­gress unex­pect­ed­ly elim­i­nat­ed two Social Secu­ri­ty claim­ing strate­gies as part of the Bipar­ti­san Bud­get Act of 2015, retire­ment plan­ning got a lit­tle more com­pli­cat­ed for peo­ple who expect­ed to use those strate­gies to boost their retire­ment income. Here are some ques­tions and answers that could help if you are won­der­ing how the new rules might affect you.

 

 

1. What’s changing?

 

The pro­vi­sion of the bud­get bill called “Clo­sure of Unin­tend­ed Loop­holes” pri­mar­i­ly address­es two Social Secu­ri­ty claim­ing strate­gies that have become increas­ing­ly pop­u­lar over the last sev­er­al years. These two strate­gies, known as “file and sus­pend” and “restrict­ed appli­ca­tion for a spousal ben­e­fit,” have often been used to increase cumu­la­tive Social Secu­ri­ty income for mar­ried cou­ples. The bud­get bill has elim­i­nat­ed those strate­gies for most future retirees, but you may still have time to take advan­tage of them, depend­ing on your age.

 

File and suspend

 

Under the old rules, an indi­vid­ual who had reached full retire­ment age could file for retired work­er ben­e­fits in order to allow a spouse or depen­dent child to file for a spousal or depen­dent ben­e­fit. The indi­vid­ual could then sus­pend the retired work­er ben­e­fit in order to accrue delayed retire­ment cred­its and claim an increased work­er ben­e­fit at a lat­er date, up to age 70. For some cou­ples and fam­i­lies, this strat­e­gy increased their total life­time com­bined ben­e­fit.

 

 

Under the new rules, effec­tive for sus­pen­sion requests sub­mit­ted on or after April 30, 2016 (or lat­er if the Social Secu­ri­ty Admin­is­tra­tion pro­vides addi­tion­al guid­ance), the work­er can file and sus­pend and accrue delayed retire­ment cred­its, but no one can col­lect ben­e­fits on the work­er’s earn­ings record dur­ing the sus­pen­sion peri­od, effec­tive­ly end­ing the file-and-sus­pend strat­e­gy for cou­ples and fam­i­lies. The new rules also mean that a work­er who files and sus­pends can no longer request a lump-sum pay­ment in lieu of receiv­ing delayed retire­ment cred­its for the peri­od dur­ing which ben­e­fits were sus­pend­ed. (This pre­vi­ous­ly avail­able option was help­ful to some­one who faced a change of cir­cum­stances, such as a seri­ous ill­ness.)

 

Restricted application

 

Under the old rules, a mar­ried indi­vid­ual who had reached full retire­ment age could file a “restrict­ed appli­ca­tion” for spousal ben­e­fits after the oth­er spouse had filed for retired work­er ben­e­fits. This allowed the indi­vid­ual to col­lect spousal ben­e­fits while delay­ing fil­ing for his or her own ben­e­fit, in order to accrue delayed retire­ment cred­its.

 

Under the new rules, an indi­vid­ual born in 1954 or lat­er who files a ben­e­fit appli­ca­tion will be deemed to have filed for both work­er and spousal ben­e­fits, and will receive whichev­er ben­e­fit is high­er. He or she will no longer be able to file only for spousal ben­e­fits.

 

The bottom line

 

A lim­it­ed win­dow still exists to take advan­tage of these two claim­ing strate­gies. If you are cur­rent­ly at least age 66 or will be by April 30, 2016, you may be able to use the file-and-sus­pend strat­e­gy to allow your eli­gi­ble spouse or depen­dent child to file for ben­e­fits, while also increas­ing your future ben­e­fit. To file a   restrict­ed appli­ca­tion and claim only spousal ben­e­fits at age 66, you must be at least age 62 by the end of Decem­ber 2015. At the time you file, your spouse must have already claimed Social Secu­ri­ty retire­ment ben­e­fits or filed and sus­pend­ed ben­e­fits before the effec­tive date of the new rules.

 

 

2. Why did Congress act now?

 

Both the file-and-sus­pend and the restrict­ed appli­ca­tion strate­gies were made pos­si­ble by the Senior Cit­i­zens Free­dom to Work Act of 2000. Part of this Act’s orig­i­nal intent was to enable indi­vid­u­als to change their minds in the event they deter­mined that they want­ed to work longer but were already receiv­ing Social Secu­ri­ty retire­ment ben­e­fits. How­ev­er, this opened up some claim­ing strate­gies, that while legal, went beyond the orig­i­nal intent of the leg­is­la­tion. Con­gress used the bud­get bill to close these loop­holes in order to save mon­ey and slight­ly reduce the long-range actu­ar­i­al deficit faced by the Social Secu­ri­ty trust funds.

 

 

3. What if you’re already using one of these strategies?

 

If you are already using the file-and-sus­pend or the restrict­ed appli­ca­tion strat­e­gy, you will not be affect­ed by the new rules. You have already met the age require­ments.

 

 

4. How are benefits for surviving spouses affected?

 

Rules affect­ing sur­viv­ing spous­es have not changed.   If you are eli­gi­ble for both a sur­vivor ben­e­fit and a retire­ment ben­e­fit based on your own earn­ings record, you can still opt to receive one ben­e­fit first, then switch to the oth­er high­er ben­e­fit lat­er.

 

 

5. What planning opportunities still exist?

 

Even if you can no longer take advan­tage of the file-and-sus­pend and restrict­ed appli­ca­tion strate­gies, you may still ben­e­fit from con­sid­er­ing your Social Secu­ri­ty fil­ing options. The age when you begin receiv­ing Social Secu­ri­ty ben­e­fits can sig­nif­i­cant­ly affect your retire­ment income and income that is avail­able to your sur­vivors.

 

Basic options for claim­ing Social Secu­ri­ty remain unchanged. Cur­rent­ly, the ear­li­est age at which you can receive Social Secu­ri­ty retire­ment ben­e­fits is 62, but if you choose to take ben­e­fits before your full retire­ment age (66 to 67, depend­ing on the year you were born), your ben­e­fit will be per­ma­nent­ly reduced by as much as 30%. On the oth­er hand, if you delay receiv­ing Social Secu­ri­ty ben­e­fits past your full retire­ment age, you’ll receive delayed retire­ment cred­its, which will increase your ben­e­fit by 8% for each year you delay, up to age 70.

 

Deter­min­ing when to file for Social Secu­ri­ty ben­e­fits is one of the biggest finan­cial deci­sions you’ll need to make as you approach retire­ment. There’s no “one-size-fits-all” answer–it’s an indi­vid­ual deci­sion that must be based on many fac­tors, includ­ing oth­er sources of retire­ment income, whether you plan to con­tin­ue work­ing, how many years you expect to spend in retire­ment, and your income tax sit­u­a­tion. It’s espe­cial­ly com­pli­cat­ed when you’re mar­ried because you and your spouse will need to plan togeth­er, tak­ing into account the Social Secu­ri­ty ben­e­fits you each may be enti­tled to, includ­ing sur­vivor ben­e­fits.

 

Although some claim­ing options are going away, plen­ty of plan­ning oppor­tu­ni­ties remain, and you may ben­e­fit from tak­ing the time to make an informed deci­sion about when to file for Social Secu­ri­ty.