SS Changes May Affect Your Retirement
Posted on January 30, 2016 by bob in MoneyWise
On April 7, 2000 the Senior Citizens’ Freedom to Work Act was signed into law. Among other things, the law created the “file and suspend” and “restricted application” strategies which for 15 years 
provided married couples an array of strategies to consider for maximizing their Social Security retirement income benefits.
On November 2, 2015 the Bipartisan Budget Act of 2015 was signed into law, taking away those same options. The changes will reduce the benefits many couples receive by thousands of dollars during their retirement years.
Before we look at the changes, let’s use a fictional couple to illustrate some basic Social Security concepts. Let me also comment that, like most things associated with Social Security benefits, this gets complicated.
John, age 66, is still working and has yet to draw Social Security. Mary, age 65, is about to retire. Each has paid enough into the system to qualify for Social Security retirement benefits, although John’s benefit is much larger than Mary’s. Depending on their choices, for the past 15 years it has been possible for John and Mary to collect (a) a benefit based on his/her own earnings history, (b) a spousal benefit based on his/her spouse’s earnings history, (c) a combination of both under some circumstances. The two strategies that are going away mainly let filers coordinate their choices to draw either their own or a spousal benefit while the other increased as a result of waiting to collect it.
If John postponed filing for his benefits, Mary could only collect her own benefit, not a spousal benefit. For Mary to collect a larger spousal benefit, John would first have to file and suspend. If Mary started collecting her own benefit (not spousal), John could file a restricted application and collect a spousal benefit based on Mary’s earnings history while he continued to work and let his own benefit increase. There are other combinations, but this seems sufficient to illustrate the range of choices.
For those who were age 62 or older by December 31, 2015, the restricted application opportunity is still available. For anyone younger, forget about it. A filer (John) may use a restricted application, where available, to file exclusively for spousal benefits if the spouse (Mary) is already receiving benefits based on his/her own earnings history. This allows the benefit from one’s own earnings history (John’s) to increase monthly until it reaches a maximum amount at age 70.
The file-and-suspend strategy will go away after 4/30/16. This strategy allows one spouse who has reached Social Security full retirement age (John) to file for benefits and immediately suspend receipt of those benefits, allowing them to increase monthly to age 70. By doing so, that individual’s spouse (Mary) can then file for spousal benefits, even though his/her spouse (John) is not actually receiving a monthly benefit. If you or your spouse will be at least 66 and the other will be at least 62 before the cutoff date, you would be wise to investigate whether the file-and-suspend strategy makes sense for you. Younger people are not eligible and the opportunity for those in the qualifying age group will vanish in a couple of months. It may not be your best option, but you should still check to make sure.
For those who had planned on using either of these strategies and will no longer qualify, you have my sympathy because the change affects me as well. The lesson is that many things in life are changeable, including laws, taxes, government benefits, etc. That is why you need to remain alert to meaningful changes in the financial environment and factor new information into your financial plan.
Alan Wallace
Alan Wallace, CFA, ChFC, CLU, is a Senior Private Wealth Advisor for Ronald Blue & Co.’s Montgomery office, www.ronblue.com/location-al. He can be reached at 334-270-5960, or by e-mail at alan.wallace@ronblue.com.
