Anthony Engrassia

Anthony Engrassia

New law ends two Social Security strategies

By Anthony Engrassia
Business Columnist

0 Comments | Leave a Comment

When President Barack Obama signed the 2015 budget act on Nov. 2, he also closed two Social Security loopholes a growing number of married couples were using.

The loopholes were created when the Senior Citizens’ Freedom To Work Act of 2000 became law. That law’s primary intent was to provide incentives to people choosing to work longer by allowing them to continue to remain in the workforce and still receive full Social Security benefits after they reached full retirement age. However, this also has been used as a strategy to boost a couple’s lifetime Social Security benefits by allowing them to accumulate Delayed Retirement Credits while also collecting benefits.

The first change addresses the “restricted application for spousal benefits,” commonly known as “restricted claims.” Prior to the new budget act, an individual who was eligible for a spousal benefit (based on his or her spouse’s work record) and a retirement benefit (based on his or her own work record) could elect to receive only the spousal benefit at full retirement age. This allowed the individual to accumulate Delayed Retirement Credits at 8 percent per year. The strategy allowed the person to then switch to his or her own larger benefit at any point in the future through age 70. The new law phases out this option.

The second change involves the voluntary suspension, commonly referred to as “file and suspend.” This allows a lower-earning spouse to apply for spousal benefits only after the primary wage earner (under whose record he or she is filing) has filed for benefits. The higher-wage earner would file for benefits as soon as he or she hit full retirement age, then immediately suspend those benefits. The benefits for the higher-wage earner would stop, allowing him or her to accumulate Delayed Retirement Credits at 8 percent per year. Even though the benefit was suspended, the lower-earning spouse still was able to collect spousal benefits. The new budget closes this loophole so that all benefits payable under the earnings record of an individual will be suspended.

If you had a financial plan that included one or both of these strategies, you should revisit your plan because these aspects might no longer be valid once the budget act takes effect May 1. Additionally, if you are eligible for “file and suspend,” you’ll want to talk to your financial professional before the new law takes effect.

Anthony Engrassia is an investment adviser representative of Mutual for Omaha Investor Services.