Just when you think you understand . . . along comes change.
You’re probably aware that some important changes to the Social Security program were included in the recently passed Bipartisan Budget Act of 2015. These changes were signed into law in early November 2015.
Two popular social security claiming strategies will likely impact larger numbers of benefit recipients; these are the ‘file-and-suspend’ strategy and the ‘deemed filing’ strategy. (Additional revisions not discussed here will also impact other recipients.)
File and Suspend
The ‘file-and-suspend’ strategy, which has been available to married couples, involves one spouse filing an application for retirement benefits when he or she reached full retirement age and then immediately requesting that benefits be suspended. This action made the spouse eligible to file for a spousal benefit during the suspension period.
Under the new legislation when an individual chooses to suspend retirement benefits, neither the individual nor the spouse can receive benefits based upon the primary individual’s earnings record. So going forward, no benefit can be paid if any benefit has been suspended, based upon that worker’s earnings record.
A brief window of opportunity remains available for continuing to utilize the ‘old’ file-and-suspend strategy; however, that window is limited. The new provision becomes effective six months after the date the legislation was passed (i.e., May 1, 2016) and applies to new file-and-suspend claims. Those individuals who are both eligible and have implemented the ‘old’ file-and-suspend strategy before May 1, 2016 will not be affected by the change. It’s important to note that individuals must also be at least full retirement age (currently, age 66) to be eligible for utilizing the ‘old’ file-and-suspend strategy.
Deemed Filing
The ‘deemed filing’ strategy in the past involved one spouse filing for spousal benefits first and later changing to a retirement benefit based upon his or her own earnings record. This enabled a spouse who reached full retirement age and was eligible for both benefits – a spousal benefit based upon the spouse’s earnings, as well as a retirement benefit based upon his or her own earnings record – to choose which benefit to take. By filing a restricted application for spousal benefits only, this strategy allowed the individual to earn delayed retirement credits, which would result in a larger benefit when changing to retirement benefits based upon his or her own earnings record at a later date.
This strategy for earning delayed retirement credits is no longer permitted under the new legislation. Now, ‘deemed filing’ has a new meaning – an individual who applies for either a spousal or retirement benefit is ‘deemed’ to have filed an application for both. This change impacts individuals who will reach age 62 after calendar year 2015. Individuals who reach age 62 on or before December 31, 2015 will remain eligible for the ‘old’ strategy of filing a restricted application for spousal benefits upon reaching full retirement age.
That’s Not All
As is frequently the case with legislation, social security issues are highly technical, with no single universal approach best for all. And as mentioned, these are not the only two social security provisions impacted by the recent legislation.
Need help in understanding the new laws and determining the best approach for you? Give us a call. We’re always here to help.
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