The Social Security Enhancement and Protection Act of 2015 (SSEPA) will start impacting every day citizens in the near future. The Act was created as part of the bi-partisan budget passed in November 2015 and addresses what many politicians had labeled a loop-hole in the system. I believe it is important to understand the changes and how they may impact you. If you were planning on any of the strategies commonly known as “file and suspend” or “restricted application” you should read the following carefully!
In recent years, it had become more common for people to use a strategy where they would file for their Social Security benefits and immediately suspend them (file and suspend) in order to trigger Social Security benefits for a spouse (who would file a restricted application) while their own retirement benefit continued to grow until age 70. And while that method is still available for some people, it has been altered based on this new act. For many younger people, this strategy will no longer be available.
Changes brought about by the creation of SSEPA:
• April 29, 2016 is the last day that a person can voluntarily suspend their own Social Security benefit under the “old” file and suspend rules. Keep in mind that you must be full retirement age (66) or older by April 29, 2016 to be grandfathered.
• Lump-sum retroactive benefits will be eliminated for suspension requests after April 29, 2016.
• If you were age 62 or older by January 1, 2016, you are grandfathered under the “old” restricted application rules, even though you cannot actually submit such an application until you reach age 66. This is probably the most confusing aspect of these changes.
• If you turn age 62, after January 1, 2016, then you will be subject to “deeming”, which quite simply means you can neither “file and suspend”, which enables a spouse the ability to file a restricted application, nor will you be able to file a restricted application yourself.
Changes to various filing strategies are primarily dependent on your age and marital status and I have them broken down below:
At least one spouse reaches age 66 by April 29, 2016
If you are married, over age 66 now or will be by April 29, 2016, have a spouse over age 62 and have not filed for Social Security benefits yet, it is critically important that you consider filing and suspending prior to the deadline even if you don’t want to start collecting any Social Security benefits now. By filing and suspending prior to the April 29 deadline, you will create an opportunity where your spouse can file a restricted application either now or at a later date. Remember that even if your spouse is over age 62, they do need to wait until they also reach age 66 to file a restricted application. As a reminder, your spouse must have reached age 62 by at least January 1, 2016. Otherwise, even though you have filed and suspended properly, they will not be eligible to file a restricted application because they are too young and subject to “deeming” rules.
When your spouse eventually files a restricted application, this allows them to collect a spousal benefit only at full retirement age (currently 66), while allowing their own benefit to continue growing (increased by 8% annually) until they reach age 70. This is what I oftentimes refer to in articles and seminars as the “free money” strategy as you are literally collecting a spousal benefit for free while not negatively impacting your own benefit whatsoever. I can understand why the government wants to close this loophole as it is pretty lucrative and has no downside. However, by the time 2024 rolls around, this strategy will no longer be in practical use as anyone who is age 62 now will have reached age 70. Anyone who reaches age 70 should immediately start collecting Social Security benefits, if they had delayed receiving them earlier for any reason, as they will gain no additional benefit by delaying past age 70.
At least one spouse age 62 by January 1, 2016
If you are married and you or your spouse reached age 62 by January 1, 2016, then one of you may file a restricted application once they reach age 66. Keep in mind that the other spouse who is not filing a restricted application must already be collecting their Social Security benefit to create the opportunity for the other spouse to file a restricted application. If you reach age 66 and your spouse is not collecting already, then you can only choose to wait to collect your benefits for a longer period of time or collect only your own benefit. Because of the change in rules for those between ages 62 and 66, you no longer have the option of filing a restricted application while the other spouse delays their benefit. That option is only available to couples where the younger spouse is at least age 62 by January 1, 2016 AND the older spouse reached age 66 by April 29, 2016 and opted to file and suspend their benefit prior to the deadline (April 29) as outlined above.
Both spouses reach age 62 after January 1, 2016
For couples where both spouses are under age 62, it no longer matters when, or whether, your spouse files or not. You will be ineligible to file a restricted application even when you reach your full retirement age (66 to 67 depending on year of birth). The decision making becomes much simpler for these younger couples. You can choose to either collect your full retirement age benefit (at age 66 or later) or delay receiving your benefit until age 70. By delaying the receipt of benefits beyond your full retirement age, you will increase your benefit by 8% per year up until age 70. There is no need to consider whether your spouse is claiming already or not!
Keep in mind that a number of other complexities, such as spousal benefits, divorced spousal benefits and survivor benefits have not gone away, but would require too much detail to cover in one blog! However, if you have any questions regarding these changes, you can email me at scott@bloomassetmanagement.com.
