Tom: Good morning, Mellody!

Mellody: Good morning, Tom!

Tom: This morning for Money Monday you are going to give us a heads up on some changes that were caused by the recent budget deal which Congress passed and the President signed last month.

Mellody: I am, Tom. While the country happily avoided brinksmanship and another government shutdown when Congress reached a budget deal and the President signed the bill in December, there are three big rules changes that will alter how many couples file for Social Security. After years of advising people to take advantage of some of the filing strategies, I am now here this morning to tell you how the landscape has shifted with the rule changes.

Tom: Wow, adjustments to Social Security filing options. That doesn’t sound good. What is the first one?

Mellody: Well, the biggest change to the rules will end one of the best options for couples to maximize their retirement earnings, an option called file and suspend. Once one spouse reached full retirement age (currently 66), that person could file for Social Security and then immediately suspend their portion of the benefits.

However, this then allowed their husband or wife to claim a spousal benefit while their own deferred Social Security grew 8 percent per year until age 70. This strategy allowed spouses like stay-at-home parents or individuals who had been pushed out of the workforce early to have cash flow while building their Social Security retirement credits, and it is a very common practice. No more. Under the new rule, if a worker suspends their benefit, all benefits will be suspended and this applies to spouses, ex-spouses, and children. This takes effect may 1, 2016.

However, if you or your spouse will reach the age of 66 by April 30, 2016, you are grandfathered in under the new rules, and can still take the file and suspend route. So, if you or your parents or other loved ones are going to turn 66 by that date, you need to ensure that you make sure that this opportunity is seized.

Tom: What are the other rule changes?

Mellody: File and suspend was the big change, but a couple of other strategies will cease on May 1, 2016. The first is the restricted application. This allowed those who are between their full retirement age and 70 to file a restricted application to claim spousal benefits, but defer their own benefits until age 70. Once they hit 70, they can change from receiving spousal benefits to their own, greater benefits.

After april 30, when a spouse files anytime after age 62, he or she will fall under the “deemed filing” rule, which already applies to people who are not at their full retirement age. Now Social Security will determine whenever you file, you are taking advantage of your own benefits. With the elimination of restricted applications and the introduction of deemed filing for all ages, a spouse can only receive the larger of either their spousal benefit or their own benefit.

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