Social Security Planning

Sailing Sunset photo - for Social Security Planning cover


Section 831 rules of the Bipartisan Budget Bill 2015 has created major changes to Social Security. We are continuing to evaluate the impact of the proposed changes. One certainty is that Social Security will remain complicated, and individuals and couples will need guidance through this new process. Below is a synopsis of our firm’s understanding of the new rules.

Voluntary Suspension
What we know as “file and suspend” as a benefit claiming strategy will cease to exist in about 6 months. This claiming option involves one spouse, usually the higher earner but not always, opening their record for benefits but immediately suspending payment. The purpose was to allow the worker’s spouse to begin a spousal benefit while the worker’s benefit continued to earn delayed retirement credits on his own record.

With the new legislation, when an individual suspends his benefit, all benefits paid from his record are also suspended. Previously, a beneficiary could suspend benefits while a spouse or young children could continue collecting a benefit from his record. The new legislation will require that a beneficiary be receiving his or her own benefit in order for other benefits to be paid from his record.

The new legislation will leave on the table the ability to suspend benefits for the purpose of accruing delayed retirement credits. So if you an individual who files early and later decides it was a mistake, he or she can suspend benefits at full retirement age and accrue delayed retirement credits. However, any other benefits being paid from the suspended benefit will stop.

The good news is that anyone who has already claimed benefits with a file and suspend strategy, or anyone who implements such a strategy within the next 6 months, can continue with their strategy.

Restricted Application
The other major change with the passage of new rules is the elimination of the “restricted application.” Restricted application allowed a spouse who had attained full retirement age, who was also eligible for his or her own retirement benefit, to collect only a spousal benefit. At a later date, usually age 70, the spouse would switch to his or her own retirement benefit which would have grown to its maximum with delayed retirement credits.

The new legislation extends a concept called “deemed filing.” Deemed filing has only been a factor before reaching full retirement age. Prior to reaching full retirement age, if an individual filed for any benefit, he or she was “deemed to be filing” for all benefits. This meant that if a individual was eligible for his or her own benefit and a spousal benefit, he or she would only be paid a single benefit – the equivalent of the higher of the two. But if the individual waited until full retirement age to claim a benefit, he or she could choose which benefit to receive. If the choice was made to receive a spousal benefit, his or her own retirement benefit would continue to accrue delayed retirement credits. The new rule extends the deemed filing provision to age 70, meaning that the payable benefit will always be the higher benefit if eligible for more than one.

There is one small concession in the new legislation. The new rules around restricted application apply only to individuals who attain age 62 after 2015. For those who achieve age 62 prior to 2016, it remains possible to file a restricted application for spousal benefits only at full retirement age. However, this option is being effectively “phased out” over the next four years.

Widows and Divorced Benefits
Nothing in the legislation mentions widows benefits, and we believe the strategies available to widows remain unchanged. It will still be possible for a widow to begin a widow benefit and switch to his or her own retirement benefit at a later date or vice versa.

Divorced benefits seem to have suffered what some are calling an unintended consequence of the legislation. As of now, since filing a restricted application will not be available for anyone reaching age 62 after 2015, divorced individuals will not able to use this option unless they fall into the grandfathered group who will already be aged 62 by the end of 2015.

Michael Kitces' SS Claiming Cheat Sheet 2015
We will continue to monitor developments with this legislation. There are a number of procedural questions that will require interpretation by the Social Security Administration before some of the impacts are finalized. As we stated earlier, individuals and couples will need help in determining a Social Security claiming strategy more than ever as these new rules unfold and become even more confusing.


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