This week’s bipartisan budget deal that was agreed between Congress and the White House will significantly impact Social Security benefits. In particular, it affects spousal and dependent benefits related strategies, namely ‘File and Suspend‘ and ‘Restricted Option‘. A quick note on these strategies: In case of a file and suspend, one spouse files for benefits and immediately suspends until a future date up to age 70 allowing the other spouse (if eligible) to start claiming spousal benefits. This allows the first spouse to increase benefits via delayed credit while the second spouse collects spousal benefits and also gets to take delayed credit to her own benefits should she switch over to her own benefits later (if higher). Under a ‘restricted option’ (aka restricted application), one spouse is already collecting benefits on his/her own record and the second spouse (if eligible) can restrict benefits to just spousal benefits and can later take higher benefits (with delayed credit) based on personal record.
While the details are still emerging from the deal and it is not the law at this time, here’s what you need to know:
- File and Suspend provision may completely go away in near future. Those who are already benefiting from file and suspend strategy could potentially be grandfathered-in. Although there was a mention of cracking down it. In that case, such recipients may see their benefits reduced next spring through a crackdown provision. That means if spousal and dependent benefits are being claimed as a result of someone filing and suspending, those benefits will stop unless the person filing and suspending starts taking benefits.
- The Restricted Option will not be available to those who will be turning 62 in 2016 or later.
- It is not affecting standard delayed credit i.e. getting 8% increase in benefits for each year in delayed benefits until age 70.
- We’re studying the effect of this change to ex-spousal and survivor benefits to an individual who is also eligible for Social Security benefits on his/her own record.
- If it becomes the law either in its current or revised form, we will quickly update the Social Security Maximizer™ software.
- Even if File and Suspend and Restricted Option strategies are eliminated, you still need to do Social Security planning and take advantage of other benefits maximization approaches.