Q: My partner and I are now married and trying to decide when to file for our Social Security benefits. I read there were recent changes to the rules for spouses. How will this potentially affect our filing options as a couple?
A: You are correct that the recent budget bill that was signed into law Nov. 2 did end two popular filing strategies available to married couples. While some people will be grandfathered into the old rules based on age, many will no longer have access to these spousal techniques. Here’s what you need to know.
Closing the loopholes
As part of the budget bill (H.R. 1314) to raise the U.S. debt limit, two key Social Security “loopholes” have been closed: “file and suspend” and “restricted application” for spousal benefits. The ban on file and suspend will start with suspension requests submitted 180 days after the enactment of the bill. The ban on filling a restricted application will apply to anyone who is not 62 by the end of 2015.1
Depending on your birthday, this may affect your Social Security planning.
If you are over 62 now (or will turn 62 before the end of 2015), you may still file a restricted application for spousal benefits when you turn full retirement age. The ability to collect a spousal benefit while your own benefit builds delayed credits between the ages of 66-70 is considered one of those Social Security “loopholes.” It will be closed in four years. If you will be turning 66 in the next four years, you may still take advantage of it.
File and suspend
File and suspend will be disallowed six months from Nov. 2, the date the law was enacted. This popular strategy allows one spouse to file for their benefit to entitle the second spouse to their spousal benefit, after which the first spouse immediately suspends their benefit to build delayed credits between the ages of 66-70. While voluntary suspension will still be allowed, no spousal or dependent benefits may be paid based on a suspended benefit. Thus, after April 2016, there will effectively be no reason to “file and suspend.” Over the next six months, if you are eligible for this strategy (i.e., you are over full retirement age and want your spouse to receive a spousal benefit while your own benefit grows to age 70), you will still be able to implement it. After that, it will be disallowed.
What to do once these strategies are gone?
If you are still under 62 as of Dec. 31, 2015, spousal strategies that take advantage of these closing loopholes will not be allowed. If you have been counting on spousal benefits for a higher-earning spouse as part of your retirement-income plan, you will need to take them off the table and consider other sources of retirement income.
It will now be more important than ever to maximize Social Security benefits by claiming at the appropriate time. For married same-sex couples, this usually means having at least one spouse consider delaying benefits to age 70 to build maximum delayed credits. This will generally provide you and your surviving spouse with higher lifetime income. If you are retiring earlier than age 70, you must consider other potential sources of income during the bridge period, from retirement to age 70.
Whether you are single, married, divorced or widowed, it is important for you to take a very personal approach to your Social Security strategy. Please do not depend on the helpful workers at Social Security to make these decisions; they are very good at what they do, but they are not there to help you evaluate various strategies and weigh the pros and cons of each option. I strongly encourage you to seek out professionals who specialize in this type of planning to be sure you are making the best decision for your specific family situation. And for some of you, the clock is now ticking based on this recent legislation.
To help our LGBT baby boomers better understand how this recent legislation may impact your Social Security strategy, our friends at the Delaware Valley Legacy Fund and I will be hosting a free educational workshop on Social Security planning. If you will be filing for your Social Security benefits in the upcoming months and years, I encourage you to join us to better understand how to make the most of your Social Security benefits.
1 Source: Horsesmouth
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