A little know congressional act which became law late in 2015 affects some of the most popular Social Security strategies and may directly impact you. You need to understand whether or not the new rules apply to your situation and whether you need to take action with Social Security by the April 29th deadline.
The rule changes to Social Security are the result of the Bipartisan Budget Act of 2015, which was enacted on Dec. 17th, 2015. This Congressional Act was not focused on Social Security but nevertheless, impacted many individuals and couples because of a few key provisions within the new legislation. The act changes the rules in two key areas of Social Security benefits strategies.
- File and Suspend. (In this strategy the person making the election is not requesting benefits for themselves, but is only activating benefit eligibility for family members who may benefit from that person’s earnings record)
- The file and suspend option in Social Security (SS) allowed an individual covered by SS to file for and then immediately suspend their own benefit, thereby making other family members eligible to collect benefits on that individual’s earning record. This typically included a spouse or children. An additional benefit was that it also allowed the filing individual to continue delaying the benefit for themselves in order to further maximize it under SS’s rules until age 70.
- The Budget act changed the File and Suspend option such that this will no longer be an option unless 1)you are either already using this technique, or 2)if you will turn 66 by the April 29, 2016 deadline. The only other exception is for surviving spouses, as the new rules do not affect the options available to survivors.
- If you meet the age requirement of turning 66 by the April 29th, 2016 deadline and want to make your earnings record available to eligible family members, you must request the File and Suspend prior to the deadline in order to have it available to your family. After April 29th, you will no longer be able to request it.
- For those who do not meet the new age requirements for File and Suspend, your family members will still be able to draw benefits based on your earnings record, but only if you are also drawing benefits at that time.
- Restricted Application. ( In this strategy, the person making the application is requesting to receive a Social Security benefit, but wants to restrict that benefit to a spousal benefit, based on their current or ex-spouse’s earnings record)
- A restricted application filing allowed a spouse, or divorced spouse (if unmarried and previously married 10+ years) to file an application for benefits on their spouse’s (ex-spouse’s) earnings record to begin benefits, while continuing to delay the benefit on their own earnings record until age 70.
- A restricted application is only filed upon reaching Full Retirement Age. If attempted prior to full retirement age, it simply initiated the higher of the spousal benefit or the employee’s own benefit, and essentially locked in that benefit amount for the future.
- Restricted application filings are still available under the new law, as long as you have attained age 62 by 12/31/15. You do not have to take any action prior to April 29th, as the Restricted Application is not initiated until you are full retirement age. However, you are effectively grandfathered in under the old rules for Restricted Application filings and will still be able to take advantage of this option at your full retirement age, if that is the best course of action for you.
- If you had not turned 62 by 12/31/15, a restricted application filing is no longer available to you. Surviving spouses remain unaffected by the recent rule changes.
Because of the Bipartisan Budget Act changes to Social Security, it is wise to discuss your options with an advisor who is knowledgeable in Social Security and the nuances of these law changes, prior to making any application with the Social Security Administration. Your advisor can assist with evaluating the strategies still available to you and help you choose the strategy which will provide a best fit for the specifics of your financial situation.