How to Navigate Spousal Benefits Under New Social Security Rules

The Bipartisan Budget Act of 2015 eliminated the popular couple’s Social Security claiming strategy of file and suspend with a restricted application for spousal benefits. However, it is still possible to collect your spouse's benefits, even if you never worked under Social Security. The ability to use this strategy ended on April 29, 2016, changing the landscape as far as claiming spousal benefits in the future, but there are still options for your clients who are eligible.

Those who were born prior to Jan. 2, 1954 and who have reached their full retirement age (FRA) can still file a restricted application to receive a spousal benefit of half their spouse’s benefit while waiting to claim their own benefit up to age 70. FRA for those born prior to 1960 is 66 years of age. For those born on Jan. 2, 1954 or later the ability to claim a spousal benefit using the restricted application has been eliminated. They can still file for a spousal benefit but doing this will effectively mean that they have filed for all benefits available to them including their own benefit under Social Security’s deemed filing rules.

Additionally, filing for a spousal benefit prior to reaching your FRA results in a reduced benefit. The spousal benefit at age 62 is 35% of the covered worker’s benefit while is it 50% if you have reached your FRA. However, you are able to qualify for Medicare at 65.

The benefit of the restricted application is that the spouse who is receiving a spousal benefit based on their spouse’s earnings record will continue to accrue a benefit based upon their own earnings record, allowing their benefit to grow until they claim it later up to age 70. At that point, they have the option of going with the larger of their own benefit or continuing with the spousal benefit if that is more advantageous.

Changes in the file and suspend rules that eliminate the ability for another family member to receive a benefit off of the earnings record of someone who has suspended their benefit mean that in order to make the restricted application option work the other spouse must be drawing a benefit after April 29, 2016. (For more, see: Social Security File-and-Suspend: New Guidance Released.)

If one spouse’s full Social Security benefit is less than the one-half of the other spouse’s full benefit, then he or she might be eligible for a spousal benefit based upon the earnings record of the spouse with the larger benefit, combining the two to match the larger benefit. If the spouse who decides to take the spousal benefit is still working and has not yet reached their full retirement age, the spousal benefit could be subject to a benefit reduction if their earned income is too high.

If you were to file for a spousal benefit based upon your spouse’s earnings record at age 62 you will be considered to have filed for all benefits due to you whether for a spousal benefit or your own. There is often confusion over this, but if one spouse were to file for spousal benefits prior to their FRA, they are deemed to have filed for all benefits available to them. Those who are grandfathered for the restricted application must still wait until they reach their FRA until filing.

In order for a divorcee to collect a spousal benefit based upon their ex-spouse’s earnings record they must be at least 62 years of age, currently be single, have been married to their ex-spouse for at least ten years and not already be receiving a Social Security benefit that is greater than their ex-spouse’s benefit. Additionally, the divorce must have been final for at least two years before filing. If you remarry the ability to file for a benefit based upon an ex-spouse’s earnings record is lost. The ability to file for a spousal benefit based upon your new spouse’s earnings record doesn’t take effect until you have been married to that spouse for at least one year. (For more, see: Tips on Delaying Social Security Benefits.)

Even if your ex-spouse has not applied for his/her Social Security benefits, you can still apply for your spousal benefit based upon their earnings record. If you continue to work while receiving a spousal benefit based upon your ex-spouse’s earnings record, the same earnings test described above will apply to you if you have not reached your FRA. Any benefits reduction based upon the earnings test will be added back to your benefits once you reach your FRA.

Even with the repeal of the file and suspend with a restricted application strategy for couples, spousal benefits remain an option in some cases. Financial advisors who are well versed in Social Security benefits are well positioned to advise married – and divorced – clients about coordinating their claiming of benefits. (For more, see: Social Security File and Suspend Claiming Strategy is Ending: Now What?)