The federal budget agreement that President Obama signed into law November 2, 2015, spells the end to two Social Security strategies that some spouses have used to maximize benefits. The strategies were worth tens of thousands of dollars over a lifetime for some couples and their impending demise may require beneficiaries to take action before the changes take effect or reconsider their retirement plans.
According to Social Security’s rules, the spouse of a worker cannot claim a spousal benefit unless the worker has applied for Social Security benefits. Currently, a worker is able to file for Social Security benefits and then suspend benefits. This strategy — called “File and Suspend” — allows the worker’s spouse to begin receiving spousal benefits while the worker continues to work. The longer the worker delays retirement, the more delayed retirement credits he or she will receive.
Under the new law, a spouse cannot begin receiving benefits until the worker is actually receiving benefits, too. Workers can still file and suspend, but spouses (or other dependents, including minor and disabled children) cannot receive benefits during the suspension. The law will take effect on April 30, 2016, but it does not affect workers who have already filed and suspended benefits. Workers who are at least 66 or will turn 66 before the effective date of the law may still file and suspend in order to trigger benefits for their spouse.
The law also changes another rule that allows a spouse who takes benefits at full retirement age to choose whether to take spousal benefits or benefits on his or her own record. This strategy – commonly known as “Claim Now, Claim More Later” — allows a higher-earning spouse to claim a spousal benefit at full retirement age. Then at 70, the higher-earning spouse would claim the maximum amount of his or her retirement benefit and stop receiving the spousal benefit.
If you are 62 or older by the end of 2015, you will still be able to choose which benefit you want at your full retirement age. Under the new law, when workers who are not 62 by the end of 2015 apply for spousal benefits, Social Security will assume it is also an application for benefits on the worker’s record. The worker is eligible for the higher benefit, but he or she can’t choose to take just take the spousal benefits and allow his or her own benefits to keep increasing until age 70. This new rule does not apply to survivor’s benefits. A surviving spouse will still be able to choose to take survivor’s benefits first and then switch to retirement benefits later if the retirement benefit is larger.
For more information on who is affected by the rules, go here: http://www.investmentnews.com/article/20151030/FREE/151039996/advisers-rethink-retirement-plans-amid-social-security-changes. Contact your elder law attorney or financial advisor to determine if you should take any action before the new rules become law.