Social Security Loophole Worth Thousands Now Closed by Congress

The Bipartisan Budget Act of 2015, signed into law on November 2, 2015, closed a loophole in  Social Security used by a savvy few which increased their benefits by up to $10,000 to $50,000 for a couple. In general, retirees receive larger monthly benefits the longer they wait to collect. Using a tactic known as file-and-suspend, the higher-earning spouse could file for Social Security benefits at age 66, but immediately suspend them. This entitled the other spouse to file for spousal benefits at age 66 (which are normally 50% of the higher earner’s benefit) while the benefits tied to their own earning record continued to grow by 8 percent a year. The benefits for the spouse electing to suspend benefits would also grow by 8% a year. At age 70, both spouses would claim their own benefits, and would receive substantially more than they would have at age 66. This option has now been removed. Under the new law, if a person files and suspends, no one can claim benefits based on that person’s earnings. For those who were age 62 by the deadline for the new rules, April 30, 2016, the file-and-suspend option is still available.

Another option removed by the new law was to file a “restricted application” at age 66 to claim only the spousal benefits available under their spouse’s earnings record. At age 70, they could switch to the benefits under their own earnings record, which would have now grown by 8% per year. Under the new law, anyone filing for Social Security benefits will be “deemed” to have filed for any benefits available to them, and will receive the highest benefit available. The restricted application option is still available for those who were age 62 in 2015.

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