New changes affecting how Social Security benefits can be claimed were announced in late October. These changes affect the use of the “File and Suspend” claiming strategies; change the “Deemed filing” age; and eliminate the ability to receive retroactive benefits.
Note that there are NO changes to the “core benefits” of Social Security or the factors used to calculate benefit payments.
New Rules for “File and Suspend”
“File and Suspend” has been a strategy used by married couples to maximize benefits and allow both spouses the ability to push their own benefit payments out to age 70 in order to get the higher benefit amount on both work records.
In the past, the “file and suspend” claiming strategy was used by married couples and allowed a worker to be able to “file” for their own Social Security benefit then immediately “suspend” the benefit payments in order to allow their spouse, who is full retirement age, to take a spousal benefit. By electing this, the worker could allow his/her benefit to grow until they reached age 70, resulting in a benefit increase for each year suspended. Because the spouse wasn’t taking their own benefit and was only taking a spousal benefit, their benefit could also grow until they also reached age 70.
Now under the new rules, when a worker files for benefits to allow their spouse to receive a benefit off their record (i.e. spousal benefit), the worker must take their own benefit at the same time. There is no longer an option to “suspend” taking your own benefit just to allow your spouse to take a spousal benefit based on your work record.
If you have already started a “file and suspend” strategy, the new rules will not affect you. Also, a worker can still voluntarily choose to suspend their benefits up to age 70 and earn the increase in their benefit up to age 70. The difference now is that their spouse can’t take a spousal benefit while the worker has their benefits suspended.
New Rules for “Deemed Filing”
In the past if a worker was younger than their full retirement age and filed for Social Security benefits, they were “deeming” to file for all benefits. If they waited until their full retirement age, the worker could choose to take their benefit or their spouse’s benefit.
Under the new rules, “deemed filing” is now pushed out to age 70. This means if you file for benefits prior to attaining age 70, you are filing to take all benefits on your record at the time of filing (you can’t choose between your own benefit and your spouse’s).
Note that the “deemed filing” rule changes will not effect widow(er) benefits.
New Rules: “Retroactive Benefits”
Retroactive Benefits: Under past guidelines, when a person filed for benefits they could back date the filing and receive a lump sum for the missed payments. This option is no longer available. So if you postpone taking your benefit, either on purpose or by mistake, you can not file and ask to be paid for the time that you postponed.
Who may be affected by this?
The effects of the new rules will be felt differently depending on one’s age.
1. For those that have already started benefits, there is no change.
2. Those that are at least age 66 today can choose to use the file and suspend strategy until 4/29/2016 and choose to delay retirement credits for up to 4 years.
3. Those who are age 62 by 12/31/15 are grandfathered and are not subject to the new deeming rules.
4. For those born in 1954 or later, the new rules will apply when they file.
When planning how to use Social Security benefits, a key calculation is whether to start payments at the full retirement age, or to defer them and allow them to grow. With the new rules the break even age between these two choices will be pushed back to a later age. Life expectancy will continue to be very critical in the decision making process, but remember that Mosaic is here to guide and help you with these decisions.