Social Security will soon close a benefit loophole that once enabled married couples to squeeze more money from the system -- potentially tens of thousands of dollars per couple.
Before describing this strategy -- known as "file and suspend" -- here are some important deadlines you need to know:
- You'll still be eligible to file and suspend under the old rules if you were born on or before April 30, 1950. If you were born after this date, you'll be able to file and suspend for other purposes, but you won't get the special advantages for married couples.
- To file and suspend under the old rules, you need to file with the Social Security administration no later than April 29, 2016.
Due to the potentially high volume of people contacting the Social Security administration during this period regarding this benefit, if you're eligible and want to take advantage of this strategy, it may be better to file online at www.ssa.gov.
What's the file and suspend strategy that's being eliminated?
When you attain your full retirement age (FRA), currently 66, you can file to start your Social Security benefits but then immediately suspend them. This allows your benefits to continue to increase at 8 percent per year until age 70. For many workers, delaying the start of their benefits until age 70 increases the payments they may receive over their lifetime, and it can increase survivor's benefits after they pass away.
If you meet the criteria described above and file and suspend your own benefit, your spouse may be able to start their spousal benefit that's based on your earnings record, if your spouse has attained age 62 when benefits start. In this case, the spouse's benefit payable starting at your spouse's FRA is equal to half of your FRA benefit. Early retirement reductions apply if your spouse starts this benefit before his or her FRA.
Benefits for dependent children under age 18 or permanently disabled adult children may be paid as well, but they're subject to the family maximum on total benefits paid.
There's one more possible trick for "dualies," a term coined by Andy Landis, author of "Social Security: The Inside Story." Dualies are people who are eligible for a benefit based on the greater of their own earnings record and the spouse's benefit described above. This trick works only for spouses whose earned benefit is larger than the benefit they're eligible for as a spouse. In this case, a spouse who has attained FRA can file a "restricted application" to start just the spouse's benefit and then let their own earned benefit continue to grow at 8 percent per year until age 70.
These strategies have the potential to add tens of thousands of dollars to the Social Security benefits of eligible workers and their spouses over the course of time they receive benefits.
It's also important to note that in certain other circumstances and for other reasons, in the future you'll still be able to file and suspend benefits or file a restricted application. Congress decided to eliminate just the strategy described above because of the perception that it was a loophole primarily benefiting affluent people.
Some of the articles about Congress closing this loophole have described the changes as a "massive" or "devastating" benefits cut. While some people may indeed have relied on these strategies, such descriptions are largely exaggerations.
It still pays to explore the best strategies
If you're part of a married couple after April 29, it will still pay for you to explore the best strategy for you and your spouse to claim your benefits. Delaying the benefit for the primary breadwinner is still a great approach for many people. The best time to start the benefit for the other spouse may be a little more complicated, partly depending on whether the spouse is a dualie.
Your best bet is to explore online tools that can help identify optimal strategies, such as the calculator offered by financial advisory firm Financial Engines. It can also help you decide if it's beneficial to take advantage of the file and suspend strategy.
Remember, it's always a great use of your time to explore the optimal claiming strategies for your Social Security benefits. It could mean reaping a higher income in your retirement years.