Money Talk: More Questions and Answers About the End of ‘File and Suspend’
Dear Readers: The changes Congress made to the “claim now, claim more later” Social Security strategy generated so many questions from readers that I’m devoting a second column to answering some of those queries. Next week, we’ll get back to the usual mix of personal finance topics.
Question: I am divorced after being married for 27 years and have not remarried. I was planning to file for early retirement benefits at 62 (I’m 58 now) on either my own or my ex-spouse’s record.
Then at full retirement age, I would switch to the other record, depending on which would be a larger monthly amount. Do the new rules affect early retirement claims the same as they affect suspended benefit claims?
Will I be able to file for early retirement benefits on the smaller payout, then change to the larger at full retirement age using the divorced spousal filing for one of the times?
Answer: The rules never allowed you to do what you’re proposing to do.
If you file for benefits before your own full retirement age, you’re deemed to be applying for both your own retirement benefit and a spousal benefit, and essentially given the larger of the two. Your benefit would be permanently reduced because of the early start and you wouldn’t have the option to switch later.
The “claim now, claim more later” strategy that Congress targeted involved waiting until full retirement age (66 to 67, depending on your birth year) and then filing a restricted application for spousal benefits only.
That allowed you to collect an amount of up to half the benefit earned by your spouse or ex-spouse. Then you could switch to your own benefit at age 70, when it maxed out, if that benefit was larger.
The rules have now changed so that people who haven’t turned 62 by the end of this year, like yourself, will no longer be allowed to file that restricted application.
Question: I turn 66 next year. My wife is 63 and receiving Social Security benefits. When I turn 66, can I file a restricted application for spousal benefits?
Answer: Yes. People who are 62 or older by the end of this year still have the option to file a restricted application for a spousal benefit.
That is as long as the “primary worker” (in this case, your wife) is receiving benefits or was able to “file and suspend” before the May 1, 2016, deadline.
Filing for retirement benefits and then immediately suspending the application meant the filer’s benefit could continue to grow while still allowing the spouse to claim a spousal benefit.
Question: I was married for 23 years and divorced in 2009. I was told by the IRS about a year ago that when I turn 66, as long as I am still working, I can collect half of my former husband’s Social Security until I turn 70. Is that still true with the new rules? I am 62.
Answer: You shouldn’t be asking the IRS about Social Security strategies. They have a hard enough time answering people’s questions about taxes.
Your employment status has nothing to do with being able to get a spousal benefit.
When being employed matters is when you start Social Security benefits before full retirement age. If that’s the case, your check will be reduced by $1 for each $2 you earn over a certain amount (which is $15,720 in 2015 and 2016). That “earnings test” ends when you reach full retirement age (which in your case is 66).
Now, on to heart of your question — and the weird incentive Congress just gave people to get divorced.
Since you’re 62, you’ll still be allowed to file a restricted application for spousal benefits at 66.
If you’re still unmarried at that point, your spousal benefit will be based on your former husband’s earnings record. If you remarry, though, your spousal benefit will be based on your current husband’s record.
If you remarry, your husband will have to be receiving benefits or have filed and suspended by May 1 for you to receive spousal benefits. If you don’t remarry, your ex just has to be old enough to receive Social Security — 62 or above.
So married couples now have an incentive to split up, said economist Laurence Kotlikoff, coauthor of the book Get What’s Yours: The Secrets to Maxing Out Your Social Security. If they divorce, one of them can put off starting Social Security benefits, but the other can start spousal benefits — something he or she couldn’t do if still married.
To qualify for divorced spousal benefits, the marriage had to have lasted at least 10 years, the divorce must be at least 2 years old, and the person applying for spousal benefits must not be remarried.
Liz Weston is the author of The 10 Commandments of Money: Survive and Thrive in the New Economy . Questions for possible inclusion in her column may be sent by email at firstname.lastname@example.org. Distributed by No More Red Inc.