Social Security Benefit Rule Change
Written by Editors
Don’t be so quick to claim for spousal benefits if you are not yet at retirement age. Back in 2015, the Bipartisan Budget Act made changes to Social Security’s laws about claiming retirement and spousal benefits. Section 831 of the law (entitled “Closure of Unintended Loopholes”) made several changes to the Social Security Act and closed two complex loopholes that were used primarily by married couples. The first loophole called “deemed filing” allowed married individuals to start receiving their spouses benefits at full retirement age, while letting their own retirement benefit grow by delaying it. This allowed married couples the incentive to delay claiming retirement benefits for one spouse while their monthly benefits grew larger for every month the other spouse delayed receiving retirement benefits between full retirement age (currently 66) and 70.
Not so any more. Under the new law deemed filing is extended to apply to all those at full retirement age and beyond. In addition, deemed filing may occur in any month after becoming entitled to retirement benefits. For example, if you begin receiving your retirement benefit and only later become eligible for a spousal benefit (or vice versa), you will be “deemed” to have applied for the second benefit as soon as you are eligible for it. Your monthly payment will be the higher of the two benefit amounts. There are some exceptions to this rule such as widower benefits and disability benefits. We suggest you consult with your financial adviser for more specific information related to you and your situation.
Example of Deemed Filing: Stephanie turns age 62 after January 1, 2016 and her husband, Gary, is 66. They have each worked enough years to earn a retirement benefit. In March of 2018, Stephanie has reached her full retirement age and files for benefits. Stephanie is eligible for a spousal benefit on Gary’s record. Stephanie must file for both benefits. She can no longer file only for the spousal benefit and delay filing for her own retirement. She will receive a combination of the two benefits that equals the higher amount.
The second loophole called “File and Suspend” allowed a worker at full retirement age or older to apply for retirement benefits and then voluntarily suspend payment of those retirement benefits, which allowed a spousal benefit to be paid to his or her spouse while the worker was not collecting retirement benefits. The worker would then restart his or her retirement benefits later, for example at age 70, with an increase for every month retirement benefits were suspended.
Sorry Charlie. Under the new Bipartisan Budget Act, you can still voluntarily suspend benefit payments at your full retirement age (currently 66) in order to earn higher benefits for delaying. However, during a voluntary suspension, other benefits payable on your record, such as benefits to your spouse, are also suspended. And, if you have suspended your benefits, you cannot continue receiving other benefits (such as spousal benefits) on another person’s record. Let’s go back to our happy couple –
Example of File and Suspend: Gary will turn 66 in 2016, and Stephanie will turn 62. Gary starts his retirement benefit at his full retirement age, 66, in June 2016, and Stephanie starts her spousal benefit based on his record. Gary immediately suspends his own benefits. In past years, that would have meant that Stephanie could continue receiving spousal benefits while Gary could restart his own benefit at age 70 and receive an increase for each month he waited. Not so fast rabbit. Now, because Gary reached his full retirement age and requested the suspension (after April 30, 2016), he is subject to the new law. He can still choose to voluntarily suspend his benefit after his full retirement age, but if he does suspend his benefits, Stephanie’s spousal benefits will also be suspended.
Remember, retirement benefits grow for each month you delay claiming, between full retirement age (currently 66) and 70. Delaying your retirement can typically increase your benefit payout by 8% a year. In 2017, the average retirement benefit was $1,368/month or $16,416. If you delay two years – that’s $1,568/month or nearly $20,000/year.
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