Chester County Family Lawyers
The End of Potentially Lucrative Social Security Benefits Filing Strategies and its Effect on Married and Divorced Couples

The End of Potentially Lucrative Social Security Benefits Filing Strategies and its Effect on Married and Divorced Couples

On November 2nd, Congress and President Barrack Obama passed legislation, the Bipartisan Budget Act of 2015, which will put an end to File and Suspend and the lesser known, Restricted Application as of May 1, 2016. This will have a profound effect on retirement planning for married couples and some divorced individuals.

Social security benefits fall under two categories, individual retirement benefits and spousal benefits. Individual retirement benefits are based on an individual’s work history and spousal benefits are based on their spouses work history, but a spouse can only claim spousal benefits once the primary working spouse files for their own social security benefits. If a person filed for both individual and spousal benefits at the same time, they would receive a social security check based on the greater amount. However, an individual does not have to file for both simultaneously in every situation and may benefit from not doing so. There are two strategies to accomplish this, File and Suspend and Restricted Application.

File and Suspend allows a married individual to receive spousal benefits while their spouse, the primary worker, delays his or her own benefit. This was accomplished when the primary working spouse filed for their social security benefits, allowing their spouse to collect spousal benefits, and then immediately suspend their benefits. This allows married couples to take advantage of spousal benefits and delayed retirement credits at the same time. File and suspend in particular benefited spouses with little to no work history, since they were typically able to collect a higher spousal benefit amount, compared to their individual benefit.

Filing a Restricted Application, also known as the free spousal benefit is available to married couples and some divorced individuals. This strategy allows an individual to receive their own spousal benefit while delaying their own individual retirement benefit. A divorced individual may be eligible to receive social security benefits based on their former spouses work history. To qualify, a divorced spouse must have been married to their former spouse for at least 10 years, be unmarried and be at least 62 years of age.

In addition to divorced couples, this application strategy allowed married couples to file for a restricted application to receive spousal benefits only. Your individual benefits would continue to grow and earn delayed retirement credits, ultimately allowing you to claim your benefits later. Claiming your individual benefits in this way, gave individuals a higher monthly benefit than they would have otherwise received. Claiming your spousal benefit at full retirement age allows you to receive your full spousal benefit equal to 50% of the primary beneficiaries retirement benefit and begin receiving your own social security benefits at a later age. During which time, your own retirement benefits would have continued to grow at 8 percent per year.

If you claimed early benefits, you could not take advantage of this strategy since you were automatically deemed to have filed both individual and spousal benefits. By extending the automatic treatment through age 70, filing as a spouse first sometime between age 62 and age 70 automatically deems an individual to have filed both individual and spousal benefits, eliminating one’s ability to allow their individual benefits to continue to grow until the age of 70.

For the next few months, a divorcee may receive benefits using the restricted application strategy when filing. If you are 66 years of age and file and suspend before May 1, 2016, you can take advantage of this strategy.


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