Law Closes Loopholes Involving Social Security Benefits but Some May Still Be Able to Take Advantage
A law passed last year closes loopholes in the Social Security rules that have allowed married couples to receive more benefits over their lifetimes by following certain strategies. The Bipartisan Budget Act of 2015 shuts down loopholes that Congress said will "prevent individuals from obtaining larger benefits than Congress intended."
However, while the loopholes will soon close, people in certain situations can still take advantage of them. Here's a brief description of the strategies that have been used by some married couples. It has been estimated that a couple using one of these strategies could receive tens of thousands of dollars more than if they hadn't used it:
1. File and suspend. Under this method, a higher-earning spouse claims benefits at his or her full retirement age, (currently age 66). However, this spouse then immediately suspends the benefits until a later date (for example, age 70). This allows the individual's Social Security credits to continue growing. (More credits mean a higher benefit later on.)
Meanwhile, the lower-earning spouse claims Social Security benefits based on his or her spouse's lifetime earnings record, which is higher and will amount to more than the benefits based on his or her own earnings record.
The new law eliminates the file-and-suspend strategy for claims filed after April 30, 2016, which is 180 days after enactment. If you've been using this method, you won't be affected. Or if you're eligible and want to claim benefits using this method until April 30, 2016, you still can. But after that date, the method will be unavailable.
2. Restricted Application. The new law also eliminates the restricted application strategy, which is sometimes called the "claim some benefits now, claim more later" method.
Under this approach, a spouse reaching full retirement age who is eligible for both spousal Social Security benefits (based on his or her spouse's earnings) and retirement benefits (based on his or her own earnings) can file a restricted application for only spousal benefits. Then, the spouse delays applying for retirement benefits based on his or her own earnings record (up until age 70) and his or her Social Security credits keep growing.
For those who turn 62 after 2015, the new law abolishes the ability to file a restricted application for only spousal benefits. If you're age 62 or older in 2015, you're still able to use the restricted application strategy for only spousal benefits upon reaching full retirement age.
Filing for Social Security benefits can be a complicated process. While the new law closed these loopholes, there are still various options for claiming benefits. You can still earn Social Security credits, and thus receive higher amounts in the future, by waiting past the full retirement age to claim benefits.
Maximizing your Social Security benefits has been more important in recent years because inflation increases have been small or nonexistent. For example, the Social Security Administration announced there won't be a Cost of Living Adjustment this year because there was no increase in the Consumer Price Index from the third quarter of 2014 to the third quarter of 2015.
Based on information provided by the government, the average monthly benefit for retirees is expected to be $1,341 in 2016. Retired couples where both spouses are eligible for benefits are expected to receive an average monthly benefit of $2,212 in 2016.
Consult with your financial adviser about how to proceed in your situation to maximize your lifetime payout.