Premier Social Security Consulting LLC
Bi-Partisan Budget Bill
On November 2, 2015 President Obama signed the Bi-Partisan Budget Bill. The primary purpose of this bill was to increase the Federal debt limit. Congress included Section 831 titled “Closure of Unintended Loopholes” effectively phasing out two powerful Social Security claiming strategies – Claim and Suspend and Restricted Application. The bill effectuates the single largest change to Social Security since the Citizens Freedom to Work Act of 2000, which first enabled most of the file and suspend strategies being removed by the current budget agreement.
In Section 831a, Congress eliminated the “Restricted Application” strategy as deemed filing is now extended to age 70. By extending deemed filing to age 70, folks do not have the option of electing to receive only a spousal benefit while allowing their benefits to earn Delayed Retirement Credits beyond Full Retirement Age. When filing for benefits, individuals will receive the largest of any benefit to which they may be entitled, their own or a spousal benefit. This change is not applicable to surviving spouse benefits as deemed filing does not apply to widows or widowers.
File and Suspend
In Section 831b, Congress eliminated the benefits of the “File and Suspend” strategy by requiring the wage earner to be receiving benefits for benefits to be paid to a spouse or children. Thus, auxiliary benefits payable to a spouse or children are not payable unless the wage earner is receiving a Social Security retirement or disability benefit. Additionally, the opportunity to file and suspend to build a cash reserve has also been eliminated.
Anyone attaining age 62 by of the end of 2015 is still permitted to file a Restricted Application at their Full Retirement Age. The Full Retirement Age for folks born between 1943-1954 is 66. For example if you attain age 62 by the end of 2015, then you can file a Restricted Application in four years at you Full Retirement Age. Of course, to receive any benefit by filing a Restricted Application, your spouse must either be receiving a benefit or having Filed and Suspended. Remember, according to Social Security, an individual attains their age the day before their actual birthday. If you turned age 62 on January 1, 2016, then in the eyes of Social Security attain age 62 on December 31, 2015 and thus is eligible to file a Restricted Application at Full Retirement age.
File and Suspend
An individual can file and suspend by April 29, 2016 to preserve the following Social Security benefits:
- Build-up of cash reserve.
- Allow payment of spousal / children benefits while benefits have been suspended.
Thus, folks reaching Full Retirement Age by April 30, 2016 is eligible to file and suspend by the April 29, 2016 deadline. Remember, according to Social Security, an individual attains their age the day before their actual birthday. If your actual birthday is April 30, 2016, then in the eyes of Social Security you attain Full Retirement Age on April 29, 2016 and thus eligible to file and suspend.
Good news – spouse and children currently receiving benefits due to the wage earner filing and suspending will continue to receive benefits. The budget bill as originally written would have terminated benefits in this situation in 2016. Small miracles happen every day!
- Kate turns 62 on September 16, 2015. Since she attained age 62 by the end of 2015, Kate can file a Restricted Application during the month that she reaches Full Retirement Age – September, 2019.
- Sid was born in 1955. Since Sid will not attain age 62 by the end of 2015, he is prohibited from filing a Restricted Application.
- Samantha turned 65 on August 5, 2015. As Samantha is over age 62, she can file a Restricted Application when she reaches Full Retirement Age in August, 2016.
File and Suspend
- Alex reached Full Retirement Age, (66), on March 16, 2016. Since he is age 66 by April 30, 2016, Sam can File and Suspend by the deadline of April 29, 2016. If Alex does File and Suspend by April 29, 2016 the cash reserve buildup will be preserved along with the opportunity to pay auxiliary benefits (spousal or children) off his record while his benefits have been suspended.
- Grace turns Full Retirement Age on May 17, 2016. Since she is not Full Retirement Age by April 30, 2016, Grace is not eligible to File and Suspend.
- Charlie’s Full Retirement Benefit, PIA, is $2,000 per month. She desires to wait to age 70 to earn Delayed Retirement Credits of 32% increasing her monthly benefit to $2,640. Charlie might want to consider filing and suspending at Full Retirement Age to build a cash reserve. Let’s fast forward two years to age 68. At age 68 Charlie needs funds to purchase a new car or for medical expenses. Charlie can contact Social Security Administration and request a check for all benefits not paid of $48,000. (24 months * $2,000). Social Security will not pay Charlie any interest and she will not earn any Delayed Retirement Credits on these funds, but she has access to benefits not paid due to suspending her benefits. If Charlie had not filed and suspended then Social Security would only be able to give Charlie six months of retroactive payments or $12,000. Upon requesting a lump sum payment of accumulated benefits, Charlie can begin monthly benefits immediately or delay to earn some Delayed Retirement Credits. Caution – by Filing and Suspending Charlie will be automatically enrolled into Medicare and will not be able to continue contributions to her HSA or Health Savings Account.
- There is confusion regarding Delayed Retirement Credits. The changes in the budget bill do not impact DRCs. Thus, DRCs are earned if benefits are delayed until beyond Full Retirement Age. The strategy of waiting beyond Full Retirement Age to begin benefits still applies. And, of course waiting to age 70 to earn Delayed Retirement Credits of 32% may result in maximum surviving spouse benefits payable. For example, Alan begins his benefits at age 70 and receives $3,500 per month after the increase for Delayed Retirement Credits. Assuming his benefit is greater than his wife, Sarah’s, benefits, then she will receive a larger widow benefit for the rest of her life.
- Filing a Restricted Application to claim a spousal benefit without touching your own benefit is still available for folks attaining age 62 by the end of 2015. For example, Alice can file a Restricted Application at her Full Retirement Age if she attained 62 by the end of 2015. Of course, for Social Security purposes, Alice will attain age 62 if her actual birthday is January 1, 2016.
- The File and Suspend strategy is still available for folks turning age 66, Full Retirement Age, by April 30, 2016. If turning Full Retirement Age by April 30, 2016, folks should consider filing and suspending. Caution – consideration should also be giving to filing a Restricted Application prior to Filing and Suspending. Assume Al reaches FRA in March, 2016 and that his Full Retirement Age benefit is $2,000. Al can File and Suspend to allow his wife, Amy to collect a spousal benefit while he suspends. This strategy works if Amy is not eligible for her own benefits. However, let’s assume that Amy is eligible for $2,000 off of her record. A better strategy might be for Al to file a Restricted Application to receive a spousal benefit of $1,000 at his Full Retirement Age. If Al decides that a Restricted Application would be better within a year of Filing and Suspending, then he can withdraw this application and file a Restricted Application. If beyond the 12 month window, than the Restricted Application will not be available.
- Both spouses can wait to age 70 and earn the maximum Delayed Retirement Credits on their own benefits.
- The higher income earner should consider taking benefits prior to age 70 to allow for the payment of spousal or children benefits earlier. For example, Hal turns age 66 in January, 2017 and his Full Retirement Age benefit is $2,000. He is considering waiting to age 70 increasing his benefit to $2,640 per month due to the Delayed Retirement Credits. His wife, Samantha, will turn age 62 in January, 2016 and is not eligible for any Social Security benefits on her own record. If Hal waits to age 70 to begin his benefits then Samantha will not be eligible for a spousal benefit until age 66. If Hal begins his benefits at age 66, then Samantha will be able to begin the spousal benefit at age 62. Should Hal begin benefits prior to age 70 to allow for the payment of a spousal benefit earlier?
- Husband to wait to age 70. Wife begins her own Social Security benefits between ages 62 – 66. This strategy maximizes surviving spouse benefit and begins the receipt of some benefits at an earlier age by the wife. She will step into a larger widow benefit upon her husband’s death as he waited to age 70. Under prior law, we would have recommended the wife not collect before her Full Retirement Age as the Restricted Application strategy might have been beneficial. With the changes, it might make more sense for the wife to begin at age 62 as she will step into his shoes in the future as a surviving spouse.
Three Legged Stool
The Three Legged Stool below shows the strategies included in the top options for a married couple.
- Leg #1 – At least one spouse will wait to age 70 to maximize Social Security benefits by earning the maximum Delayed Retirement Credits. Generally, the husband will wait to age 70 to maximize his benefit.
- Leg #3 – Maximize surviving spouse benefits. Generally, upon the passing of the husband, the wife will receive surviving spouse benefits based on what he was receiving or eligible to receive at death. Thus, if he delayed to age 70, then the widow will receive a larger benefit for the rest of her life. Waiting to age 70 in Leg #1 will result in maximizing Surviving Spouse benefits under Leg #3.
- Leg #2 – Coordinating benefits between spouses. Does the higher income earner begin benefits prior to FRA to allow for the payment of spousal or children benefits?
Here is a sample of advisor questions received due to the budget bill changes.
- Do any of the changes impact benefits to a surviving spouse? No, as deemed filing does not apply to surviving spouse benefits, surviving spouses can still switch between their own benefits and surviving spouse benefits.
- My husband is 69 and has been receiving SS benefits for 3 years. I am now 65 and will turn 66 in May, 2016. I planned to file a Restricted Application at age 66 and receive 50% of my husband’s full benefit. Is this strategy still available? Yes, you are able to file a Restricted Application at your FRA, as you attained age 62 by the end of 2015. Since your husband is already receiving his benefit, you will be able to receive 50% of his Full Retirement Age benefit when you file a Restricted Application at your Full Retirement Age.
- Sally is age 63. Albert is age 64. Original plan was for Albert to File and Suspend at FRA and for Sally to file a Restricted Application. Let’s break down this strategy. Sally can file a Restricted Application at her Full Retirement Age as she attained age 62 by the end of 2015. However, since Albert is not going to attain his Full Retirement Age by April 29, 2016, he must turn on his benefits to allow Sally to receive a spousal benefit. Thus, the Restricted Application is not beneficial to Sally if Albert does not turn on his benefits.
- In March, 2016, Tom is 65 and 11 months. Chloe attained age 62 by the end of 2015. Should Tom consider the File and Suspend strategy? Should Chloe file a restricted application at FRA? Since Chloe can file a Restricted Application when she turns Full Retirement Age. Tom can File and Suspend as he will attain FRA by April 29, 2016. The answer would be different if Tom was only 65 and 3 months as he would not be eligible to File and Suspend as he will not attain Full Retirement Age by April 29, 2016.
- I have a client and she is 66 right now, (March, 2016), has not filed anything and her husband turned age 65 in September, 2015. My understanding is she can still File and Suspend and he in September, 2016 he can file off of hers until he is 70. Because he turned age 62 by the end of 2015 he can file a Restricted Application. She can File and Suspend as she turned FRA by April 30, 2016.
- Do the changes affect divorce spouses? Yes and no. If the ex-spouses were divorced for two years or less, then spousal benefits are only payable if the ex-spouse is currently receiving benefits or having Filed and Suspended by April 29, 2016. If divorced for greater than two years then the requirement that the ex be receiving does not apply as the ex-spouse is now considered an Independently Entitled Divorce Spouse and the requirement that the ex be receiving benefits does not apply.
Section 831 in the Bi-Partisan Budget Bill does phase a couple of very powerful strategies, File and Suspend and Restricted Application. However these strategies are still available for certain pockets of folks. For folks attaining age 62 by the end of 2015 the Restricted Application is still available upon reaching Full Retirement Age. Additionally, folks reaching Full Retirement Age by April 30, 2016 can still File and Suspend by April 29, 2016. For other folks these powerful strategies are no longer available. However, strategies still remain. There is still a need to review the coordination of benefits between a husband and wife to determine the best time to take worker benefits and spousal benefits. Should the higher income earner begin benefits prior to age 70 allowing spousal and or children benefits to be paid? Should a wife begin her own benefits at age 62 as she will receive a widow benefit in the future. Folks still have options and married couples might be leaving $100,000 on the table by not exploring their options. Take the time to “Make a Plan” to understand and maximize your benefits.
Please contact Marc Kiner via phone 513-247-0526 or e-mail email@example.com to discuss these changes further.
Disclaimer – The above represents a summary of the Social Security changes in the Budget Bill and is not a complete analysis of all changes. Please consult with a National Social Security Advisor, (NSSA®), prior to making any decisions. Our analysis of the bill including changes, effective dates and strategies are subject to change. The strategies represents a few common strategies and is not a complete list.
Marc Kiner has 30 years experience in public accounting. His primary areas of service were to privately held businesses and individuals. Recognizing a need in the marketplace for enhanced advisor knowledge for Social Security filings, Marc sold his practice in 2012 to concentrate on Social Security. Marc is co-founder of the National Social Security Advisors certificate program.
Jim Blair is the lead consultant in our Social Security consulting department, with over 35 years experience in helping individuals manage their Social Security benefits. Jim retired after 35 years with the Social Security Administration and is co-founder of the National Social Security Advisors certificate program.
Brian Schmidt has 22 years of public and private accounting. Primary areas of service are to individuals and business and includes complex tax planning along with mergers and acquisitions. Brian purchased his CPA practice in 2012 and belongs to the American Institute of CPAs, Ohio Society of CPAs and Knights of Columbus.