Last week congress signed into law The Bipartisan Budget Bill of 2015 which has created major changes to Social Security and will affect the popular file-and-suspend restricted application claiming strategies. Once the Social Security Administration has updated the rules based on these new laws, it may be necessary to re-evaluate the best available claiming strategy for you.
Keep in mind, if you are already receiving social security benefits you will not be affected by the new rules. Further, those who will reach full retirement age before April 30, 2016 will still have the opportunity to file-and-suspend and anyone who reaches age 62 before December 31, 2015 will still be able to do a restricted application for spousal (or divorced or ex-spousal) benefits, even if the filing does not occur until years later.
We are committed to working with our clients to navigate through these changes and will be reaching out proactively to those whom we believe are affected. However, to ensure that no one is overlooked, we encourage you to contact your Empirical advisor if you believe you are affected by the new rules.
Once the Social Security Administration has fully interpreted the new law, we will be able to provide specific advice on how to maximize these important benefits. We are hopeful that this will occur in the next 30 days.
For your further information we have provided Empirical’s understanding of these new rules below:
- Beginning 6 months after the passage of this bill, no one will be able to implement a “file and suspend” strategy. Benefits based on a worker’s earnings record will no longer be paid to any spouse or other dependent if the worker’s benefit is suspended.
- If a client has already claimed benefits using a file and suspend strategy, he or she will be “grandfathered” and may continue receiving benefits as they are now. Any benefits being paid on the earnings of a worker who has suspended benefits will continue in this circumstance.
- If a client implements a file and suspend strategy within 6 months of the passage of the budget bill, he or she will be allowed to continue with the benefit claiming strategy, and benefits that begin being paid to a spouse from the suspended benefits of a worker will continue.
- If a client will have already reached age 62 before the beginning of 2016, he or she will still have the option of filing a “restricted application” at full retirement age. This will allow the claiming of a spousal benefit while the worker’s benefit will accrue delayed retirement credits. It will be possible for the client to switch to his or her own higher benefit at a later date. Keep in mind, though, that one will only be able to receive the spousal benefit if the worker is actually receiving a benefit payment. If the worker has suspended the benefit, no spousal benefit will be payable.
- If a client will reach age 62 after 2015, he or she will not be able to use the restricted application strategy at Full Retirement Age. If the client applies for any benefit, the application will be considered an application for all eligible benefits, and the amount paid will be essentially equal to the highest benefit.
- How divorced spouse benefits will be considered in light of these changes remains unclear.
We will continue to stay abreast of the developments and update this message as we know more. If you have any questions in the meantime, please do not hesitate to contact us.