With the passage of the Bipartisan Budget Act of 2015, two strategies to potentially maximize Social Security benefit payments were eliminated.
Prior to the budget’s passage, married couples had two strategies to help maximize their Social Security benefits: “file-and-suspend” and “restricted applications.”¹
Under file-and-suspend, the higher-earning spouse filed for benefits and then suspended them, allowing the lower-earning spouse to claim a spousal benefit. This also let the higher-earning spouse accrue delayed retirement credits. Upon attaining age 70, the couple then could switch to their own individual benefit to receive the highest possible amount.
A restricted application allowed an individual, upon attaining full retirement age, to file only for a spousal benefit, based on the individual’s spouse’s work record, delaying his or her benefits until age 70. Upon reaching age 70, the individual would then convert to his or her own benefit.
Married couples also could combine the above strategies with one spouse filing and suspending a worker benefit, while the other spouse filed a restricted application to receive the spousal benefit only.
These strategies could be used by divorced recipients, too. A divorced spouse was permitted to file a restricted application for a spousal benefit at full retirement age, as long as the former spouse was 62 or older. At age 70, the divorced spouse then switched over to his or her own worker benefit, assuming it was a higher amount.
The Policy Behind the Elimination
The elimination of file-and-suspend claims becomes effective on May 1, 2016. It also prohibits restricted applications for anyone who has not reached age 62 by the end of 2015. Since file-and-suspend is only available to those who have reached full retirement age, it remains available to individuals who turned age 66 by April 30, 2016. (Couples who have already executed such claims are unaffected by the new law.)²
The reason that Congress acted, and the President signed into law this change, was to save money and close perceived loopholes in the Social Security program.
Overall savings will be small compared to the larger financial challenges that Social Security faces. These changes will save about 0.02% of the taxable wages and self-employment income subject to Social Security taxes over the next 75 years, according to the Social Security Administration a fraction of the program’s long-term deficit of 2.65% of taxable payroll.³
According to one study, these changes will impact just 0.1% of all Social Security participants.⁴
Strategy and Choices
There was one other change not yet widely discussed that may have implications for you.
For someone who exercised a file-and-suspend strategy, the rules provided the ability to receive a retroactive lump sum payment if an individual changed his or her mind and lifted the suspension. (They did lose any bump up in payment amount that came with delaying benefit payments, however.) This flexibility is also being eliminated under the Budget Act.
This ability to lift the suspension was a particularly important planning strategy because it allowed an individual who may have come down with a life-threatening illness or underwent a change in financial status to retroactively go back to their original filing date and receive a lump sum for the benefit amount not paid during the suspension period.
Keep in mind that Social Security has undergone a number of substantive changes since its inception. While the elimination of these strategies may be disappointing, these changes do not undercut the central promise of this critical social contract. In fact, they were implemented to strengthen it.
1. Social Security Administration, 2016.
2. Social Security Administration, 2016.
3. The New York Times, October 30, 2015.
4. The New York Times, October 30, 2015.
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