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Case of the Week: Time-sensitive Changes to Social Security Filing Strategies for Couples

The ERISA consultants at the Learning Center Resource Desk, which is available through Columbia Threadneedle Investments, regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. A recent call with a financial advisor in Pennsylvania is representative of a common question related to the newly adjusted Social Security filing options for married couples as a result of the recently signed Bipartisan Budget Act of 2015. The advisor asked:

“I have a married couple asking about their Social Security filing options. The wife is 66 years old and the husband is 62 years old. How do the changes to Social Security filing options affect my clients? Should they consider taking any action prior to the effective date of the new law, or are they out of luck?”

Highlights of Discussion


  • In the case of a 66- and 62-year-old couple, they are facing critical decision points regarding “file and suspend” and “restricted application” Social Security filing strategies, with an election window that closes April 29, 2016.

  • The Bipartisan Budget Act of 2015 restricts these filing strategies that seemed to favor those less dependent on Social Security benefits, and were causing strain on the Social Security Trust Fund. It is imperative that couples in these situations who have not filed for Social Security benefits talk with their financial and tax advisors now.

  • Here are the changes:


— File and suspend for the purpose of making spousal benefits available will be eliminated for any one who has not attained the age of 66 and filed an application by April 29, 2016. [File and suspend remains in place for the purpose of increasing one’s own worker benefit through delayed retirement credits (DRCs)].
— Restricted application will be eliminated for anyone who did not attain age 62 as of Dec. 31, 2015.


  • For example, using the file and suspend option, the 66-year-old (wife, in this case) could file for her Social Security worker benefit, and immediately suspend the benefit, as long as she does so by April 29, 2016. This allows her to continue earning DRCs on her worker benefit, which results in an 8% annual increase in benefit. Because the wife will have filed her application, her 62-year-old husband will be able to use restricted application to claim a spousal benefit (rather than his worker benefit) when he reaches age 66 — his full retirement age (FRA), while still allowing his own worker benefit to earn DRCs. The husband must wait until reaching his FRA to use the restricted application option to claim the spousal benefit, which will typically be 50% of the suspended spouse’s benefit. When each spouse reaches his or her respective 70th birthday, each could turn on their benefits associated with their own income record.

  • The table following the conclusion represents which of the Social Security filing strategies will be eliminated, for which ages and on what dates.


Conclusion

Time is of the essence. For any married individual who will attain age 66 by April 29, 2016, it is important to recognize that the option to file and suspend for purposes of making a spousal benefit available will end after that date, and will no longer be available. For anyone who has attained 62 years of age or older as of the end of 2015, be aware that they are the last group for which a restricted application will be available upon reaching FRA.

COTW table

The Learning Center Resource Desk is staffed by the Retirement Learning Center, LLC (RLC), a third-party industry consultant that is not affiliated with Columbia Threadneedle. Any information provided is for informational purposes only. It cannot be used for the purposes of avoiding penalties and taxes. Columbia Threadneedle does not provide tax or legal advice. Consumers consult with their tax advisor or attorney regarding their specific situation.
Information and opinions provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Columbia Threadneedle.
Columbia Threadneedle Investments (Columbia Threadneedle) is the global brand name of the Columbia and Threadneedle group of companies.

©2016 Columbia Management Investment Advisers, LLC. Used with permission.

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