New Law Closes Loopholes Involving Social Security Benefits

A new law closes loopholes in the Social Security rules that have allowed married couples to receive more benefits over their lifetimes by following certain strategies. The Bipartisan Budget Act of 2015, signed by President Obama on November 2, 2015, shuts down loopholes that Congress said will “prevent individuals from obtaining larger benefits than Congress intended.”

Here’s a brief description of the strategies that have been used by married couples but will soon disappear. It has been estimated that a couple using one of these strategies could receive tens of thousands of dollars more than if they hadn’t used it:

  1. File and suspend. Under this method, a higher-earning spouse claims Social Security benefits at his or her full retirement age, which is currently 66. However, this spouse then immediately suspends the benefits until a later date (for example, age 70). This allows the individual’s Social Security credits to continue growing. (More credits mean a higher Social Security check later.)

Meanwhile, the lower-earning spouse claims Social Security benefits based on his or her spouse’s lifetime earnings record, which is higher and will amount to more than the benefits based on his or her own earnings record.

The new law eliminates the file-and-suspend strategy for claims filed after April 30, 2016, which is 180 days after enactment. If you’ve been using this method, you won’t be affected. Or if you’re eligible and want to claim benefits using this method until April 30, 2016, you still can. But after that date, it will be unavailable.

  1. Restricted Application. The new law also eliminates the restricted application strategy, which is sometimes called the “claim some benefits now, claim more later” method.

Under this approach, a spouse reaching full retirement age who is eligible for both spousal Social Security benefits (based on his or her spouse’s earnings) and retirement benefits (based on his or her own earnings) can file a restricted application for only spousal benefits. The spouse then delays applying for retirement benefits based on his or her own earnings record (up until age 70).

By doing this, the spouse’s Social Security credits continue growing. For those who turn 62 after 2015, the new law abolishes the ability to file a restricted application for only spousal benefits. If you’re age 62 or older in 2015, you’re still able to use the restricted application strategy for only spousal benefits upon reaching full retirement age.

Filing for Social Security benefits can be a complicated process. While the new law closed these loopholes, there are still various options for claiming benefits. You can still earn Social Security credits, and thus receive higher amounts in the future, by waiting past the full retirement age to claim benefits. Consult with your financial adviser about how to proceed in your situation to maximize your lifetime payout.