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HomeBlog/NewsSocial Security changes will hit couples, divorced women hard

Social Security changes will hit couples, divorced women hard

Editor's note: On Monday, President Obama signed into law the Bipartisan Budget Act of 2015. Among its provisions are changes that shut down two popular Social Security claiming tactics: the-file-and-suspend and the restricted-application strategies. This column explains the changes to the Social Security laws and provides questions from readers and answers from experts.

If you're married...

The impact on planning for couples is nuanced, according to Joe Elsasser, founder of Social Security Timing. There are now three sets of rules:

1. For people born on or before May 1, 1950

People born on or before May 1, 1950 (those who turn 66 for Social Security purposes in April 2016) have access to voluntary suspension that allows auxiliary beneficiaries (the spouse of a retired worker and the children of a retired worker) to claim as long as the request for voluntary suspension occurs on or before April 30, 2016, and can file a restricted application at any time between ages 66 and 70.

Restricted application: With a restricted application, an individual who was eligible for both a spousal benefit based on the work record of a spouse and a retirement benefit based on his or her own work could choose to take only a spousal benefit at full retirement age. This allowed his or her own benefits to accumulate 8%-a-year delayed retirement credits, and then they could switch to their own larger benefits at any point in the future up to and including age 70. The new law phases out this option.

Voluntary suspension: Under the existing (old) law, the higher wage earner in a couple could file for Social Security benefits and then immediately request those benefits be suspended. The checks to the higher wage earner would stop, which allowed for their benefits to grow 8% a year. While the benefit was suspended, the lower wage earner spouse could collect a spousal benefit. Under the new law, only people who suspended their benefits in the past or within the first 180 days after enactment of the new bill will be covered under the old rules, and they will continue to fall under the old rules until they reach age 70 or un-suspend their benefits.

2. For people born on or after May 2, 1950, but before Jan. 2, 1954

People born on or after May 2, 1950 but before Jan. 2, 1954 can still do a restricted application under the new law. However, voluntary suspension will also suspend the benefits of other auxiliary beneficiaries, including spouses and children, and under this change to the law, the spouse benefiting cannot receive spousal excess while a voluntary suspension is in effect. (The spousal excess is the difference between one half of the higher wage earner’s full retirement benefit and the lower wage earner’s spouse’s full retirement benefit.)

3. For people born on or after Jan. 2, 1954

For these people: Under the new law, voluntary suspension suspends the benefits of the spouse and children, and the lower wage earner cannot receive spousal excess. There is also no option for a restricted application.

Questions and answers

Question: At 66 years of age, my full retirement age (FRA), I filed for Social security benefits and immediately suspended. My wife, also 66 (her FRA), filed for spousal benefits only on my account. We initiated this in August, 2014 and have received spousal benefits each month since September, 2014. Now, I am at a complete loss on what to do next because of the new law. We are both working full time and our intent is to maximize our Social Security benefits and start taking it at 70. How do we do this under the new law? —Howard

Answer: You will squeak under the wire for the effective dates of the new Social Security rules, according to Andy Landis, founder of Thinking Retirement, author of Social Security, The Inside Story and a MarketWatch RetireMentor.

The file-and-suspend changes will affect only new requests to suspend, starting six months from bill being signed into law, so there’s no problem with your already-requested suspension, Landis said. And the changes to spousal benefits affect only people born Jan. 2, 1954 and later, so your wife’s benefits also will not change.

Source: MarketWatch.com. Published: Nov 7, 2015

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