The 2015 Budget Bill, signed into law on November 2nd, will put an end to two popular Social Security claiming loopholes associated with the restricted application and file-and-suspend claiming options. While Social Security permits claimants age 62 and over to receive the greater of two amounts: up to 50 percent of their spouse’s retirement benefit or their own accrued benefit, loopholes in the law created unintended opportunities that will soon change.
HERE’S WHAT YOU NEED TO KNOW…
A short window remains open for eligible individuals to take advantage of the two strategies noted below before the new rules go into effect. Social Security recipients who are currently utilizing either strategy will be grandfathered.
Restricted Application (This will be eliminated as of January 2016)
- Today: Legislation passed in 2000 permitted married individuals who reached their full retirement age (65 for those born 1938-1942; 66 for those born 1943-1954) to “claim now, claim more late” by filing a “restricted application.” Doing so allowed the spouse of an individual to collect on a spousal benefit while suspending their own in order to receive a potentially larger payout in the future. Those who elected this scenario could receive a benefit payout through the spousal benefit, while increasing their future individual payout by 8% per year up until age 70 when they would then switch and file for their individual benefit payout.
- As of January 1, 2016: Individuals who are eligible for a spousal benefit, and elect to receive it, will be deemed to have filed for their own retirement benefit, thus losing the option to have their own payout increase while receiving the spousal benefit.
- EXCEPTIONS: Those aged 62 or older by the end of 2015 can still use the “restricted application” strategy. Likewise, spouses who are already collecting benefits on their partner’s earnings record can continue to do so and switch to their own larger retirement benefit at a later date, up until age 70.
File-and-suspend loophole (This will be eliminated effective May 1, 2016)
- Today: Seniors receiving Social Security retirement benefits have the ability to suspend their Social Security benefits, if they choose to go back to work and earn additional credits in order to increase their payout benefits in the future.
- As of May 1, 2016: No one will be able to collect benefits on their earnings record (including a spouse or children) during the period that benefits are suspended.
If you have questions or concerns about navigating the complex Social Security benefit claiming landscape, please contact us at 248-290-5252.
John M Giangrande, RFC
Jeffery P. Sprague