Personal Finance

Money Matters: New law affects Social Security filing strategies for some

Q. My wife will turn 66 (her full retirement age) in mid-April, just before the new deadline to file and suspend. I am already past that. Neither of us have filed as of yet. Under the newly passed law, we just get in and will be able to file and suspend. However, I am hearing several different things we need to do. One says that I must be already collecting before she can file and suspend and collect half of my benefits. This was never the case before. Is that true? Our benefits are essentially the same. Please explain how the new law works and any changes to the old one. We are working with a financial adviser who told us one thing then updated what they told us. However, I had never seen anything that said that I had to be collecting before she can file, suspend and then collect half of mine. We are also calling Social Security but may get three different answers from three different calls and they may not be fully up to speed.

A. On November 2, 2015 the Bipartisan Budget Act (BBA) of 2015 (formally the House Budget Bill) was signed into law. For anyone born on or before May 1,1950 the date of April 30, 2016 is important regarding Social Security benefits. One strategy for claiming Social Security Benefits impacted by the BBA is called the file and suspend strategy. After April 30, 2016, this strategy is no longer available. Another strategy impacted by the BBA is filing a restricted application for spousal benefits. I think the advice you are receiving is confusing the impact BBA has on the two strategies and the differences depending on the age of the Social Security recipient .

Before the BBA, once a person reached full retirement age (FRA) which is 66 for those born in 1943 - 1954, they could file and suspend their benefits. Their own benefit would increase by 8 percent a year until age 70. By filing and suspending, this would allow the other spouse at their FRA to file a restricted spousal application. They would receive a spousal benefit while letting their own benefit increase until age 70.

Grandfathering is rather limited under the bill. Spouses and children currently collecting benefits based on the work records of a husband, wife or parent who filed and suspended can continue to do so. There is also a six month window from the date after the bill’s passage. For those currently over FRA or for those that will reach FRA within the six months after the bill’s passage may still file and suspend.

Under the new rules, only those born in 1953 or earlier (turned 62 or older in 2015) will be able to file a restricted application for only a spousal benefit once they reach FRA. Without a restricted application, when a spouse applies for benefits they are deemed to have filed for both their own earned benefit and a spousal benefit. They will receive whichever is greater rather than having the choice to take one benefit and then switching to the other.

In your situation, since you are FRA you may chose to file and suspend but you must do so before April 30, 2016. Since your wife was age 62 or over in 2015, she may file a restricted spousal application at her FRA. The confusion may be that in order to file a restricted application for spousal benefits, the other spouse must have filed for benefits. If neither spouse has either filed for or filed and suspended benefits before April 30, 2016 the restricted spousal application strategy can only be used if the other spouse is actually receiving benefits.

It is confusing so I’ll try and explain it using birth years. For those born in 1954 or later the restricted spousal application strategy is no longer available. For those born on or before April 30, 1950 the old file and suspend rules are still available but only if you file and suspend before April 30, 2016. For those born in 1953 or earlier, you have the option of filing a restricted spousal application at your FRA but your spouse must either be receiving benefits or filed and suspended before April 30, 2016.