The Senior Citizens Freedom to Work Act, passed in 2000, allowed seniors to continue working while receiving Social Security benefits.  This Act permitted Social Security benefits planning strategies that helped couples maximize their retirement income benefits.  These strategies were tied to the concept of a primary wage earner delaying the start of their benefits while a lower earning spouse or disabled child would begin receiving the spousal benefit or disabled adult child (DAC) benefit.  The advantage of delaying the start of benefits is that a higher monthly benefit is paid the later benefits are started.

These strategies are being eliminated over the next six months as a result of the new Bipartisan Budget Act of 2015 that was signed into law on November 2, 2015.

A provision in the new law states that an individual’s spouse and DAC cannot receive benefits on the individual’s work record until the individual begins receiving his or her benefits.  Prior law allowed an individual to file and suspend receiving benefits until a later date in order to allow a spouse and/or a DAC to receive spousal/DAC benefits immediately.  This would allow the family to receive some benefits while the individual delays their own monthly benefits until a future date.  This “file and suspend” strategy will no longer be an option for anyone who has not initiated the strategy before May of 2016.

The other strategy being eliminated is the ability for an individual who has reached full retirement age (currently age 66 and rising to 67 years old for those born in or after 1960) to file a restricted application for spousal benefits. Under this strategy, one spouse files only for their spousal benefit and then switches to their own benefit at or before age 70.

The other spouse must be receiving benefits on their own record.  By not receiving their own benefit until age 70, the person could receive a lesser benefit for a few years and then receive a maximum benefit at age 70, and every year thereafter, based on their earnings history.  The new law requires individuals to be at least age 62 by the end of 2015 in order to be able to utilize this strategy when they reach age 66.  It eliminates the strategy for anyone under the age of 62 as of December 31, 2015.

The need to carefully evaluate when to start receiving Social Security income benefits will remain important after the elimination of these strategies in 2016, but becomes an urgent issue for those who are eligible to implement one of the strategies before the window of opportunity closes.  Factors such as the wages earned by both spouses over their lifetimes, the difference in their wages, the health of each spouse and their life expectancies, the need for income for a disabled child, and the availability of other income sources all need to be considered when making a decision about when to begin receiving benefits.

This update is intended for the use of Oak Wealth Advisors LLC clients.  This update should not be viewed as personalized investment or financial planning advice from Oak Wealth Advisors LLC. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to their individual situation, they are encouraged to consult Oak Wealth Advisors LLC.  Past performance does not guarantee future results and all investments should be scrutinized before being implemented in a portfolio.