While the dawn of a new year brought relatively few changes with respect to tax rules and policies—a few credits and deductions were made “permanent” instead of “temporary”, but little else changed—there was one recent change to a government benefit program that could have a significant impact on married couples’ retirement planning over the coming decades.
Hidden among the many provisions and riders in the most recent budget bill (passed by Congress in November and subsequently signed by President Obama) was language that forces a number of changes to the Social Security system, specifically to the claiming options available to married couples.
Gone for good is the popular “file and suspend” strategy, which formerly allowed married couples to coordinate their benefits in a way to maximize their combined lifetime Social Security income. Under the strategy, a high-earning spouse could file for Social Security upon reaching full retirement age, then immediately suspend benefits. The decision to file would enable that individual’s husband or wife to begin drawing a spousal benefit, even as the claiming spouse deferred benefits, thus earning the 8% annual benefit increase until age 70. The file-and-suspend strategy was widely referred to as a “loophole” by critics, and its demise may mean that retiring couples will have to be more thoughtful (or creative) about their claiming strategies going forward.
For those couples who may qualify for—and be interested in—the file-and-suspend strategy, there are still a few months left to get in under the wire. The budget bill enacted a six-month “phase-out” period during which couples will still be able to avail themselves of the strategy, but that deadline comes in late spring of 2016, so time is running out.