In early November President Obama signed the Bipartisan Budget Act of 2015 into law. This act includes key changes to the Social Security claiming
rules. These changes focus on the “Restricted Application” and “Voluntary Suspension” rules, which combined create the “File and Suspend” strategy.
The changes to the law will be phased in over the next year and are date of birth sensitive. We outline the strategies below, along with the changes and
important filing deadlines or eligibility requirements related to each strategy. Since these strategies may no longer be available to certain individuals based
on the timeframes below, you may have a limited window to act to take advantage of these planning strategies.
Social Security Legislation Impacts By Date of Birth
||May 1, 1950 or earlier
||January 1, 1954 or earlier
||January 2, 1954 or later
||If you have already filed a restricted application or elected to suspend benefits, there are no changes to your filings.
||Voluntary Suspension and Restricted Application remain available until 04/30/16.
||Restricted application will remain available at full retirement age. Voluntary suspension is no longer available.
||Neither “Restricted Application” nor “File and Suspend” strategy available.
||File your application prior to 04/30/16.
||Review strategies prior to filing.
||Review strategies prior to filing.
Voluntary Suspension: Under this strategy, an individual could file a
standard application at his/her full retirement age and then immediately
suspend the receipt of those benefits. In doing so, the benefit would
continue to grow until age 70. The annual benefit would grow
approximately 8% per year plus cost of living adjustments. Meanwhile,
the individual’s spouse could file and claim the 50% spousal benefit based
on the primary wage earners benefit at his/her full retirement age (or earlier
at 62 with the applicable discount). This strategy would allow a couple to
begin receiving the spousal benefit income (50% of the primary wage
earners full retirement benefit) while allowing the primary wage earner’s
benefit to be deferred and continue to grow until age 70. At age 70, the
higher benefit would then be available for the remainder of both lives,
thereby creating some additional longevity protection for both spouses.
Based on the changes in the new law, this strategy is no longer available.
Once an individual elects to suspend his/her benefit, then all associated
benefits (including the spousal benefit) must cease. The law allows for a
transition period for those individuals who were born on May 1, 1950 or
earlier. For those individuals the “Voluntary Suspension” strategy will
remain available until April 30, 2016. The filing and voluntary suspension
election must be made prior to that date. The viability of this benefit will
depend on both spouse’s earnings records, ages, and health.
Restricted Application: Similar to a voluntary suspension, filing a restricted
application allowed one member of a couple to claim a spousal benefit after
reaching full retirement age, while allowing his/her personal benefit to be
deferred and grow until age 70. They would then be able to switch from the
spousal benefit to his/her higher personal benefit. This strategy is often
useful if both spouses have significant earnings, so that allowing their
personal benefit to grow would eclipse the 50% spousal benefit.
As the new law is phased in, the restricted application will no longer be
available. The law will allow the restricted application to remain available
after full retirement age only for those individuals born on or before January
File and Suspend: This strategy is a combination of the “Voluntary Suspension”
and “Restricted Application” options. Under this strategy, the
primary wage earner would elect to voluntarily suspend his/her personal
benefit at full retirement age (prior to the transition window on 4/30/2016).
The spouse would then file a restricted application, allowing his/her personal
benefit to grow, while also receiving the spousal benefit available
under the primary wage earners now suspended application. At age 70 the
primary wage earner would receive the maximum available benefit, while
the other spouse would receive the larger of the continued spousal benefit
or his/her personal benefit that was allowed to grow until age 70.
Individuals born January 2, 1954 or later will no longer have the ability
to use the “Voluntary Suspension” and/or “Restricted Application”
strategies. Important decisions will remain as to how and when to file for
Social Security. It is also important to note that these changes generally
have no impact on claiming strategies for single individuals. In addition, the
changes primarily concern retirement and spousal benefits - widows will
continue to have the opportunity of restricting an application to widow or
retirement benefits, and switch to the higher benefit in the future.
In all cases, the decision on how and when to file for Social Security
benefits is an important one, and should be considered in the overall
context of your financial plan. Remember to consult with your advisor
regarding the specifics of your situation.
The information provided does not constitute legal, tax, or investment advice and it should not be relied on as such. It does not take into account any investor’s particular investment
objectives, strategies, tax status, or investment horizon. Please consult with a financial counselor, attorney, or tax professional regarding your specific investment, legal, or tax
situation. It should not be considered a solicitation to buy or an offer to provide investment advisory or other services. The information contained in this white paper may change
at any time without prior notice and is based on data obtained from Nationwide Retirement Institute, a source we consider to be reliable; however, we cannot guarantee that the information
is accurate or complete.