Last week President Obama signed into law a budget deal that eliminated a lucrative Social Security strategy for married couples.
The strategy, known as file-and-suspend, is when one spouse applies to receive Social Security retirement benefits and then suspends the payments. That allows the person’s husband or wife to collect spousal benefits, starting at their full retirement age, before collecting his or her own larger Social Security benefits later at age 70. (Spousal benefits can be up to one-half of the other spouse’s full retirement benefit.)
While the move was legal, it became known as a loophole because it allowed couples to receive some cash while waiting for their Social Security benefits to grow. For high-earning couples, the move could increase lifetime retirement benefits by as much as $60,000, experts estimate.
Going forward, workers will no longer be able to start with spousal benefits before switching to benefits based on their own work history. They will only receive one or the other. And people will only be able to claim spousal benefits if their spouse is actually receiving Social Security payments.
There are, however, a few exceptions. The bill won’t go into effect for six months, so people who are at least 66, or who will turn 66 within the next six months, can still file and suspend their benefits. People who are already collecting spousal benefits using the strategy can keep doing so. Widows will still be able to file for reduced survivor benefits starting at age 60 before claiming their own retirement benefits. And those people who are at least 62, or who will turn 62 this year, will still be able to claim spousal benefits alone before taking their own benefits, but only after age 66.
The changes are complicated and led to lots of questions from readers wondering how the law would affect them. We answer some of those questions below.
Q: What is the exact date for the rule change?
The budget bill was signed into law on Nov. 2. People ages 66 and up have a six-month grace period — until April 29 — to file and suspend their retirement benefits. People who are at least 62 now, or who will turn 62 this year, will have the option of claiming spousal benefits before their own, but not until they are at least 66. (Sixty-two is the earliest age at which people can start collecting Social Security.)
Q: My wife will be 66 in April. Can she still file and suspend her benefits?
People who are 66 now, or who turn 66 before the law goes into effect in six months, will still be able to file and suspend their Social Security retirement benefits as long as they do so within the next six months.
Q: I’m 63 now. Can I still claim spousal benefits before my own benefits later?
People who are at least 62 years old, or who will turn 62 this year, will still have the option of claiming spousal benefits while their own retirement benefits grow. But they can only do that after they reach their full retirement age, 66.
Q: I am at least 66 years old and am already collecting my spousal benefits, with plans to defer my own retirement benefit until age 70. How will we be affected?
People who are already receiving spousal benefits through file-and-suspend are grandfathered in and should not be affected by the new rules.
Q: As a 68-year-old divorcee, I am working full time. When I turned 66 my local Social Security office encouraged me to collect Social Security on my former spouse’s Social Security account and continue to work and accrue on my own Social Security account. How will the rule change affect me?
People who are already collecting spousal benefits through file-and-suspend will not be affected, even if they are collecting benefits based on an ex-spouse’s benefit. They can keep claiming spousal benefits and then switch to collecting retirement benefits based on their own work history at age 70.
Going forward, however, divorcees will only be able to claim their benefits or benefits based on their ex-spouse’s work history, whichever is greater. (Unless the person seeking to claim ex-spousal benefits is 62 or older this year. That person will still be able to claim ex-spousal benefits after age 66.)
Correction: People ages 66 and up have until April 29 to file and suspend their Social Security retirement benefits. A previous version of this article incorrectly said they had until May 2.