Your Social Security Options Just Become More Limited

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Earlier this month, President Obama signed the Bipartisan Budget Act of 2015, taking away two lucrative social security strategies, and making it harder on Baby Boomers hoping to retire.

File and Suspend

Under this first strategy, the higher-earning spouse applies for benefits at full retirement age (FRA), and then immediately suspends the receipt of these benefits until age 70. This then permits the lower-earning spouse to receive spousal benefits (typically one half of the working spouse’s benefit) if higher than her own earned benefit. For a married couple where only one spouse worked, this is a substantial benefit, permitting the non-working spouse to increase her individual benefit, while the working spouse continues to work and continues to earn delayed retirement credits, accruing a larger benefit for the period suspended.

The second benefit of File and Suspend is that the working spouse has the right to claim all benefits from the date of full retirement age if he elects to do so. For example, if the working spouse later decides to retire before age 70, he may either take his increased benefit (accruing at 8% per year) or take his FRA benefits in arrears to the date of his initial filing.

Under the Act, this strategy will not be available 180 days after the Act was passed. For those eligible (if you attain age 66 by May 1, 2016), you must apply by April 30, 2016.

How much difference will this make to a retiree? Speaking personally, I had planned on using this strategy when I turn FRA at 66 ½. Losing this planning option will cost my wife almost $50,000 in lost benefits.

Restricted Application Strategy

The second planning opportunity that was eliminated was the Restricted Application Strategy (sometimes referred to as the “Claim Now, Claim More Later” strategy). Under this strategy, the lower-earning spouse claims their full benefit. The higher-earning spouse who has reached FRA files an application for spousal benefits under the lower-earning spouse’s account (again, receiving one half of the lower-earning spouse’s benefit). The higher-earning spouse continues to earn delayed retirement credits on his account. At age 70, the higher-earning spouse then files and collects on his own account, earning delayed retirement credits since the date of his FRA, substantially increasing his benefit at age 70 and beyond.

The Restricted Application Strategy has been eliminated for those born in 1954 and thereafter. If you turn 62 by December 31, 2015, this planning opportunity is still available for you.

Bottom Line

The loss of these planning opportunities will negatively impact many couples’ retirement planning. For those who planned on following either of these strategies, it may be a better choice to take your full retirement benefit at your FRA, even if you do not need it. If you have any questions or concerns regarding the above, please feel free to contact me directly at david.platt@henlaw.com or by phone at 239-344-1355.

About the Author

David M. Platt helps clients in all aspects of estate planning, estate and trust administration, as well as real estate and business entity formations. He has been recognized for his work in estate planning and probate matters by Best Lawyers In America® every year since 2006 and Florida Super Lawyers® magazine (2012—2015). David is also AV-rated by Martindale-Hubbell. David serves on the Lee Memorial Health System Foundation Board of Directors and is a member of the Lee County Bar Association. He is a former board member of “CROW” (Clinic for the Rehabilitation of Wildlife) in Sanibel.