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The Current State of Social Security Claiming Strategies

The Bipartisan Budget Act of 2015 was a mixed blessing for investors and retirees.  On the bright side, the deal extended the government's ability to issue debt (and so to pay its bills) just days before it was expected to run out of money.  Not meeting this deadline would have meant upsetting the bond markets.  The other silver lining in this budget deal was that it nipped in the bud at least some of the increases in Medicare Part B premiums that were scheduled to take place at that time.

But as in most bipartisan compromises, there was plenty to dislike in that budget agreement.  It did away with a couple of coordinated Social Security claiming strategies, "file-and-suspend" and "filing a restricted application", that were characterized by the Administration as unintended loopholes.  These filing strategies had been used by savvy retirees and informed financial advisors to optimize Social Security income, especially for married couples.

More specifically, the ability to "file-for-and-then-suspend" your own SS benefits for the purpose of enabling your spouse or dependent to claim benefits based on your work record lapsed soon after the Act passed. Now, individuals are prohibited from receiving benefits based on the earnings of another individual who has voluntarily suspended his or her benefits.  Likewise, an individual who has suspended his or her own benefits is prohibited from receiving benefits based on any other Social Security record during the period of suspension. 

This section of the legislation also terminated an individual claimant's ability to receive retroactive Social Security benefits based on a period of voluntary suspension.  Previously, "filing-and-suspending" had been a way for single retirees to protect themselves from a deterioration in their health severe enough to reduce expected longevity and occurring between their full retirement age (FRA) and age 70.  In effect, this strategy had kept the door open to changing your mind about delaying to file for your own benefits beyond FRA. 

The other SS-related provision in the Bipartisan Budget Act of 2015 was to sunset the "restricted application" strategy.  Those of us born on or after January 2, 1954 are no longer able to file a "restricted application" for Social Security benefits based on a spouse's work record.  Now, to use Administration terminology, "deemed filing" occurs.  That is, a claimant who applies for retirement benefits is automatically deemed to have applied for any spousal benefit to which he or she is eligible, and similarly, a claimant who applies for a spousal benefit is automatically deemed  to have applied for his or her retirement benefit.

Those of you who were 62 or older as of January 1, 2016 will still be able to take advantage of this strategy when you reach your full retirement age.  Those of us younger than that are left to lament over what might have been unless ...

... you are widowed. Social Security survivor benefits are unaffected by the new rules.  Surviving spouses with their own earnings record are still able to claim SS retirement benefits first and then later switch to survivor benefits, or vice versa, whichever is preferable.

Divorced ex-spouses fall somewhere in the middle of these new rules.  Like married spouses, those who turn 62 after January 1, 2016 have lost the ability to file a "restricted application" at full retirement age.  However, divorced spousal benefits are unaffected by the "file-and-suspend" restriction.  Even if an ex-spouse files and suspends his benefit, it will not affect the ability of a former spouse to collect benefits on his earnings record.

In summary, while the Bipartisan Budget Act of 2015 discontinued for many a couple of advantageous Social Security claiming strategies, there is still plenty of leeway to optimize the timing of your filing depending on your personal and financial circumstances.  This is especially the case for those of you who are married, widowed, or divorced, and so potentially have access to benefits based on more than one work record.

To read more about when to file for your Social Security benefits, please click on "Should You Withdraw from your Retirement Accounts or File for Social Security?"

About the Author

Paul Winter, MBA, CFA, CFP® is a Fee-Only financial advisor and fiduciary in Salt Lake City, UT. His independent wealth management firm, Five Seasons Financial Planning, provides professional portfolio management and objective financial planning services to individuals and families, and to their related entities including trusts, estates, charitable organizations, and small businesses.  

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