In an effort to avoid a potentially imminent government shutdown, an 11th hour budget and debt-ceiling deal was passed by Congress and the Senate last week and simply awaits the President's signature, which is expected in the next day or two.
Among the many components of this bill are significant changes to social security filing options. As a result, many of the favorable filing strategies to maximize lifetime social security benefits will be eliminated. Please note, however, that anyone currently receiving benefits based on these filing strategies will not be affected by these new social security filing rules.
The impending changes to social security filing strategies are without question the most significant changes since the "Senior Citizens' Freedom To Work Act of 2000". Although elimination of these Social Security filing strategies have often been characterized as "closing loopholes for the rich", the reality is that the groups likely to be harmed the most will be lower and middle income families and women. Here we go again! Strangely enough, the government has also indicated that it actually doesn't expect to receive any meaningful savings from elimination of these (to date) "little used" filing strategies for at least 10 years. It appears to be more of a pre-emptive strike against the waive of baby boomers entering their social security filing years.
So what were the biggest changes to the social security filing options? Basically, it was the elimination of the "file and suspend" and "file and restrict" strategies and also the extension of "deemed filing" from full retirement age (FRA) to age 70. The "file and suspend" option will end 6 months after the bill is passed. After that, if you voluntarily suspend your benefit, you will not be able to claim benefits based on anyone else's earnings record, and no one will be able to claim benefits on your record.
This change will have a broad-reaching impact on how and when you can claim Social Security benefits. For example, you can no longer file and suspend to enable your spouse to file for a spousal benefit or to enable benefits for school-age children, since filing for your own retirement benefits is usually a pre-condition for starting "family benefits".
The bill will also implement changes to a complex set of Social Security rules known as "deeming". In simple terms (prior to this bill), if you obtained your FRA and wanted to file for spousal benefits while deferring the start of your own benefits (so that your benefits could continue to increase in value) you could do so even if your own FRA benefit amount was greater than 50% of your spouse's FRA benefit amount. However, if you were between the age of 62 and your FRA, and if your own FRA benefit amount was greater than 50% of your spouse's FRA benefit amount then you would be required to take your own benefit (you would not be eligible for spousal benefits in that case).
Under the new rules, deeming is extended from FRA to age 70. Therefore, if your own FRA benefit is greater than 50% of your spouse's FRA benefit you will no longer be eligible for spousal benefits. You can only file for your own benefit. This rule will also affects divorced spouse's, which could have a devastating affect on their lifetime benefits.
Although these filing options are scheduled to be eliminated, there is currently a critical "transition period" where these generous filing strategies will still be available for new filers. This "window of opportunity" will be available for the next 6 months only. For those of you who are between the ages of 65 1/2- 70 it is critical that you contact a social security retirement income specialist to determine what your eligible benefits are. It is important to note that these special filing strategies could generate as much as $50,000-$300,000 in additional lifetime benefits for you from Social Security.
In addition, for those of you who are between the ages of 62-70 as of 12/31/15, there may also still be some valuable opportunities to utilize special filing strategies before they are eliminated. Since Security Security remains one of the few pension benefits available to most Americans, it is more important than ever to review your filing options and make sure you obtain all your eligible benefits before your "window of opportunity" closes.
Ash Ahluwalia, NSSA, CCSCA, MBA