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Plan Well, Retire Well

Saving and investing your money

If you haven’t yet filed for Social Security, you may need to change your plans.

Were you planning to file-and-suspend or file a restricted application when you claim Social Security benefits? Your plans could be derailed by the new Social Security rules that were signed into law as part of the Bipartisan Budget Act of 2015.

If you aren't really familiar with Social Security rules and benefits, you might want to start with a general overview. The Consumer Financial Information Bureau has a good introductory tool to help you get the basics.

Whether you are affected depends largely on your age and marital status. Married couples and those who were married for ten years or more before being divorced may find that their Social Security claiming strategies will be much more limited under the new Social Security rules. Single persons are less likely to be affected, because these strategies had fewer benefits to them to start with.

What are these strategies? And what are the changes?

The strategies that are disappearing were only available if you waited until Full Retirement Age (FRA) to file for benefits. FRA is between ages 66 and 67, depending on the year you were born. At that point, someone filing for Social Security for the first time could file and suspend or file a restricted application.

File and Suspend Strategy

Old rules: With the file and suspend strategy, Spouse A would file for benefits at FRA or later, but suspend them and receive no payments. The suspended payments would increase 8% a year with delayed retirement credits, until Spouse A un-suspended and started collecting them. Once Spouse A filed and suspended, Spouse B could start receiving spousal benefits on Spouse A's work record. This strategy worked best for couples where one spouse had not worked, or had worked very little or in a much lower-paying job than their partner.

This aspect of the file and suspend strategy was irrelevant for ex-spouses, since there was no requirement for an ex-spouse to file before you could receive a spousal benefit.

Another potential benefit of filing and suspending that applied to both married couples and single persons was the ability to "unsuspend" and receive the suspended benefits in a lump sum.

New rules: You can still file and suspend, but no one can receive benefits on your record while your benefits are suspended. And, you can no longer receive those suspended benefits in a lump sum when and if you "unsuspend."

Restricted Application Strategy

Old rules: Under a "normal" application for benefits, the Social Security Administration looks to see what benefits you are eligible for, such as worker benefits and spousal benefits. Then, in simple terms, they give you the larger of the two. If you waited until FRA age to file, you could use a restricted application to specify which benefit you wanted to receive.

Spouse A might file a restricted application at FRA and choose to receive only spousal benefits. Spouse A's unclaimed worker benefits would increase 8% a year with delayed retirement credits until Spouse A filed a second application to start collecting them. This strategy was sometimes called Some Now and More Later, because it allowed couples where both were eligible for benefits on their own work records to receive some benefits now (Spouse B's worker benefits and a spousal benefit for Spouse A), while letting Spouse A's worker benefit increase until claimed later.

New rules: Regardless of the age at which you file, all applications will be deemed by the Social Security Administration to be an application for any and all benefits for which you are eligible. There will be no more restricted applications.

What are the effective dates? Who's affected and who's not?

If you have already implemented one of these strategies, you will not be affected.

Widow(er)s (including divorced surviving spouses) are unaffected; you will still have the option to claim either your survivor benefit or your own worker benefit first, and later switch to the other benefit.

If you file and suspend by April 29, 2016 (meaning you were born before April 30, 1950 so that you reach FRA by April 29, 2016) you will also not be affected. More importantly, your spouse can receive spousal benefits while those benefits are suspended. Also, whether married or single, you can still "unsuspend" and receive reinstated benefits in a lump sum.

If you reach FRA later than April 29, 2016, you will not be able to file and suspend.

You will be able to file a restricted application when you reach FRA if you were born on Jan. 1, 1954 or earlier - meaning that you are at least age 62 in 2015. But this only helps if:

  • Your spouse will file for their worker benefit before you reach age 70 (or files and suspends by April 29, 2016), so that you can receive spousal benefits before you re-file and claim your own worker benefit. Your worker benefit only receives delayed retirement credits until you reach age 70, so there is no point in claiming spousal benefits at that age.
  • For divorced couples who were married at least ten years, your ex-spouse is at least age 62 by the time you reach FRA and can file the restricted application. The rules for divorced spouses are different from the ones for married couples: there is no requirement that your ex have filed in order for you to get spousal benefits.

Next steps

Are you feeling confused or overwhelmed? I'm not surprised. The variety and complexity of the choices for claiming Social Security benefits has spawned an entire industry of commercial calculators and caused many financial advisors to add Social Security planning to their services.

These new rules add to the complexity, at least in the short term. To summarize:

  • For those born between Jan. 2, 1954 and April 29, 1950, you are still eligible for both of the strategies I've discussed here. You have choices, but you only have between now and April 29 to figure out whether you should file and suspend now or file a restricted application within the next few years.
  • For those born before April 29, 1950, you must decide whether to file and suspend by April 29.
  • The choices will be much simpler, albeit less financially rewarding, for those born after January 1, 1954; you are too young to implement these strategies before they disappear.

These tips may help you get accurate advice during this time.

I hope this information will help you as you plan for this important part of your retirement income.

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