The Investment Scientist

Recent Social Security Changes You Need To Be Aware Of

Posted on: November 9, 2015

Russ Thornton[by Russ Thornton] When sharing the initial results of my survey last week, there was a high level of interest in the topic of Social Security.

And here we are, just a week later, with a couple of significant Social Security changes included in Section 831 of the recent budget approved by the House and expected to be approved by the Senate. 

These are changes that could cost some of you tens of thousands of dollars in lifetime Social Security benefits.

First, a little history . . .

Back in 2000, a law was passed that included a provision allowing you to apply for Social Security benefits and then voluntarily suspend those same benefits. While adding to the already complex choices involved with Social Security benefit elections, this law unintentionally allowed some couples to “double dip” from their Social Security benefits.

More on that in a minute . . . 

One of the two big Social Security changes involves what is called “deemed application.”

Deemed application is a requirement that if you’re eligible for both your own AND a spousal benefit, you’re required to take both at the same time. However, since Social Security will only pay you the larger of any benefits you’re eligible for, you effectively lose one of these benefits.

Prior to last week, deemed application only applied if you filed for benefits prior to your full retirement age. As a result, this created something called a “restricted application” where you could elect to file for an eligible spousal benefit and let your own benefit continue accumulating delayed retirement credits. This would allow you to switch back to your own benefit at a higher amount in the future.

Not any more. It’s gone.

Now if you file for benefits at any age, you will now be making a deemed application and will get the larger of any benefits you’re eligible to receive.

However, if you’re age 62 or older this year (2015), you’re still eligible to file a restricted application. Which means if your 62nd birthday is in 2016 or later, you’ll no longer be able to file a restricted application at any time.

Now back to the file and suspend change . . .

Let’s say your spouse would like to apply for their eligible spousal benefit but can’t do so until you file for your own benefit. But maybe you don’t want to take your own benefit right now and would rather defer it to age 70 to get a larger benefit amount.

In fact, deferring your own benefit may also result in a larger survivor benefit for your spouse.

To accomplish the above, the strategy is called “file and suspend.” You would file for your own benefit at full retirement age and then immediately suspend these same benefits so you wouldn’t receive any benefit payments. However, your filing allowed your spouse to begin receiving their spousal benefit while your benefit continues to grow as you defer payments up to age 70.

This strategy is no longer available.

Now, if you file and suspend your benefits, you will also suspend benefits to anyone else that are based on your own earnings record. This means you can file and suspend, but your spouse can no longer collect spousal benefits while your benefits are suspended.

So file and suspend is no more.

Currently, the effective date on the elimination of file and suspend is 6 months from now. I haven’t seen an official date published, but if you’re eligible and want to explore a file and suspend strategy, you can still elect this strategy for the next few months.

For married couples, file and suspend was often a great strategy to maximize lifetime Social Security benefits for you and your spouse. Now that it’s going away, some have estimated that this will eliminate up to $50,000 in combined benefits over your lifetime.

These changes can also impact ex-spouses and dependent children if they currently receive or plan on receiving benefits based on someone else’s earnings record.

The original proposal was to eliminate (via suspension) any current benefits being received based on someone else’s benefit that had been suspended.

The current discussion is to amend the changes so anyone currently receiving a file and suspend benefit will continue to receive those benefits. But starting 6 months from now, no one will be able to start new file and suspend benefits arrangements.

I’ll continue to update you as more details are finalized around these changes.

In the interim, if you have any questions or would like to discuss your future Social Security election strategies, please call me or reply to this email and let me know.

And if you’d like to read more about these changes, a couple of good articles can be found here and here.

Hope you find this information helpful and timely. Let me know what you think.




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Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.


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