New U.S. Budget Deal Brings Changes to Social Security Spousal Benefit Option
In July, I wrote about file and suspend, an advantageous Social Security benefits claiming strategy for married people. Unfortunately, this option has been eliminated by the new budget bill passed by Congress and signed into law by President Obama on November 2. While the bill will help reduce Social Security budget deficits, it will also impact some individuals’ financial plans.
First, let’s briefly revisit how these strategies work. A person who is at least full retirement age files for benefits and then suspends them. His or her spouse then files a restricted application to collect a spousal benefit and can later switch to his or her own benefit, which will have grown 6 percent to 8 percent annually because of Delayed Retirement Credits. This would allow the couple to receive income from Social Security, while also taking advantage of the growth in their own accounts.
Under the new law, this strategy will no longer be an option going forward. If you already receive these benefits, you are grandfathered in under the old rules. The new law will require that you begin your own benefits (no longer being able to suspend them) in order for your spouse to qualify for spousal benefits.
Last Opportunity for Some
As of May 1, 2016 (180 days after the bill became law) no one will be allowed to voluntarily file and suspend. This grace period provides one last chance for some to utilize the strategy and be grandfathered. If you turn 66 years of age before May 1, are married and have not started benefits, you can still file and suspend, which would allow your spouse to begin benefits when he or she turns at least 62.
Divorced or Widowed
Currently, single-divorced individuals who are 66 or older and were married at least 10 years could claim a benefit on their ex-spouse’s earnings record, while letting their own benefit grow. Under the new law, only those who have turned 62 years of age or older this year will be allowed to take advantage of an ex-spouse benefit and switch to their own benefit by age 70. Younger divorced people will have to choose the benefit of either the ex-spouse’s earning or their own.
Widow and widower benefits were not included in these changes. They may continue to file a restricted application for only widow benefits and later switch to their own earned benefits, if they choose.