Earlier this month on November 2nd, Congress quietly passed sweeping Social Security reform in the 2015 Budget Act. The changes will affect how married couples collect Social Security from this day on, and may send many pre-retirees scrambling. We’ll discuss the major changes below, and the timelines on how to act.
The first major change is that there will be no more “file and suspend” options after April 29, 2016. This strategy allowed one spouse to file for Social Security, and then suspend their benefit payments, thus allowing the husband or wife to claim their spousal benefits (or other ancillary benefits). This would allow the spouse’s own benefit to continue earning delayed retirement credits (8%/year).
The second major change comes with regard to a restricted claim of spousal benefits. Before the approval of the reforms, if you were not eligible for a benefit solely because your spouse hadn’t filed, you had a choice as to when you wanted to take it, and additionally, when you wanted to add the spousal benefit. Now, the benefit must be immediately paid upon eligibility. Furthermore, when you voluntarily suspend your benefit and your spouse is claiming based on your benefits, your spouse’s benefit would in turn end.
If you are a pre-retiree and are at least age 66, the file and suspend strategy is still available until April 29, 2016, and would allow you to receive delayed retirement benefits for up to four more years. Obviously, if this is a consideration in your planning, it is critical to start the process as soon as possible.
If you are 62 or older by the end of 2015, you are grandfathered in. That means if you’ve filed, or filed and suspended your own retirement benefits before April 29, 2016, your spouse will still be eligible to file a restricted application for spousal benefits. The only caveat here is that your spouse will need to be 62 by the end of 2015 as well. The new rules will not apply to a widow/widower. They will still be able to claim a survivor benefit while deferring their own Social Security benefit.
When these new rules take effect after April 29, 2016, you will no longer be able to receive a benefit based on anyone else’s earnings if you have voluntarily suspended your own individual benefits. This is a major change to Social Security planning, and will almost certainly impact the majority of pre-retirees. This change came suddenly, with little public or media coverage, as it was a part of the larger emergency spending bill that Congress passed to avoid default. The Social Security Administration claims the new rules will save billions of dollars per year, closing the spousal benefits and file and suspend “loopholes”.
If you are a pre-retiree, it is likely that these changes will substantially impact your retirement income planning, and you have a short six-month window to plan accordingly. At Wealth Planning Network, we have updated our planning strategies, and are able to assist you with your planning. Call us today at (708) 481-4000 or email us at [email protected].