What’s done is done. so what was done?
The Bipartisan Budget Act of 2015 made dramatic changes to several well-known Social Security claiming strategies. The two main changes were to the restricted application for spousal benefits and “file and suspend”.
• What changed?
With regards to the Restricted Application, the changes are quite significant. In the past, a worker who reached his full retirement age would be able to file for benefits and then suspend receiving them, which would allow his benefits to “roll up” by 8 percent each year. At the same time, if his spouse had already filed for her retirement benefit, he would also be able to collect spousal benefits based on her earnings record. This filing strategy, known as the Restricted Application for spousal benefits, was introduced in 2000 by the Senior Citizens Freedom to Work Act. The restricted application will now be phased out over a four-year period.
• File and suspend still works! But how?
Despite what you may have read in all the media’s Doomsday alerts, the final bill does allow for a worker to file for benefits and suspend receiving them. This means that if a worker chooses to suspend receiving their Social Security benefit at or after they reach their FRA, they can still gain delayed retirement credits of 8 percent per year. However, “file and suspend” can no longer be used as an advanced filing strategy because the bill prevents dependents from receiving benefits based on a primary worker’s earning record if the primary worker has suspended their benefits.
Under both the old and new rules, a dependent (child or spouse) can only collect benefits based on the primary worker’s earning record, if the primary worker has already filed to receive their benefit.
However, according to the old rules, a dependent could continue receiving benefits based on the primary worker’s record even if the primary worker later chose to suspend receiving their own benefits. In other words, for a dependent to be able to collect benefits based on the primary worker’s record, the primary worker just had to have already filed for benefits — they didn’t have to be actively receiving them.
The new rules mean that a dependent can only collect benefits on the primary worker’s earning record if the primary worker is also receiving their benefit. If the primary worker suspends his benefits, his dependents cannot collect Social Security based on his earning record. The government seemed to think this was a form of “double dipping” since you were not collecting benefits but dependents were collecting benefits from you.
Additionally, it used to be that if a worker decided to suspend receiving benefits and then reactivated them three years later, the Social Security Administration would send him a lump sum payment for every year his payment had been suspended – plus the 8 percent his benefit had rolled up each year. This has been done away with under the new bill — the payback option is no longer available.
• Divorced spousal benefits
Divorced spousal benefits have been changed much like the restricted application. In the past, a divorcee could file a restricted application and collect benefits based on their ex-spouse’s record, while their own benefit rolled up by 8 percent per year. The new changes mean that deemed filing occurs for all ages, which eliminates this option for everyone who is not “grandfathered in” to the old rules. People born on or after Jan. 1, 1954 cannot file for a lower benefit amount and then later switch to a higher one. Under the new rules, divorced spousal benefits are still available but only if a person’s retirement benefit is lower than their divorced spousal benefit.
• Are surviving spouses safe?
I was happy to see that survivor benefits were not changed by the new rules — Social Security survivor benefits remain separate from an individual’s own retirement benefits. This means a person can still collect their survivor benefit and let their own retirement benefit roll up, and then later switch to their own higher benefit later. This will continue to provide a nice safety net for many widowed seniors.
In my next column, I will continue this segment and I will reveal what was grandfathered in, what does this really mean to you and when do the changes go into effect.
Steve Temple is a senior partner with Ohio Financial Center with locations in Dublin and Troy. With 22 plus years in his industry, he has written numerous columns both locally and nationally.