This article was updated on April 6, 2016.
As part of recent negotiations between Congress and the White House over the budget, major changes to Social Security took away some key strategies that couples could use to boost their total benefits. Most of the attention has centered on the file and suspend strategy and its imminent demise in May 2016. But another key strategy called the restricted application strategy -- or filing as a spouse first -- is also on the chopping block, and the implications of its removal could be even larger in the growing number of two-earner families.
How filing as a spouse first worked
To understand the restricted application strategy, you first have to know how various Social Security benefits interact with each other. Social Security recipients are entitled to two potential benefits: their own retirement benefits based on their work history, and spousal benefits based on their spouse's work history. In most cases, people file for both at the same time.
The amount they receive is the greater of their retirement benefit or the spousal benefit, and technically, their checks consist of their retirement benefit plus any excess spousal benefit. So if your retirement benefit is $900 per month, but your spousal benefit would be $1,000, you'd get a check for $1,000, $900 of which is based on your work history and $100 of which is your excess spousal benefit.
The idea behind the restricted application strategy was pretty simple. Under previous law, once you turned full retirement age, you could file a restricted application, and only receive your spousal benefits. Your own retirement benefits could then grow over time, earning delayed retirement credits. Later, you could claim your own benefits, and earn a higher amount.
For instance, in the same example above, you could file as a spouse first, and get your full $1,000 spousal benefit. Your $900 retirement benefit would earn delayed retirement credits, and if you waited until age 70 to claim, it would have grown to $1,188. Therefore, the restricted application strategy would get you an extra $188 per month from age 70 for the rest of your life.
How the rules changed
The reason more people didn't use the filing as a spouse first method was that most people claimed early benefits, and you couldn't use the strategy if you hadn't reached full retirement age. Before then, you were automatically deemed to have filed both for your retirement benefit and for a spousal benefit, even if you didn't want to. The new rule change extends that automatic treatment through age 70, effectively wiping out its usefulness.
The grandfathering provisions of filing as a spouse first are somewhat more lenient than those for file and suspend. If you turned 62 by Jan. 1, 2016, then you'll be able to use the strategy sooner or later -- even though some will have to wait as long as four years before actually following through with a restricted application. For those who are younger, though, the strategy isn't available and won't be in the future.
Why losing the restricted application is a big deal
Many see the loss of file-and-suspend as the biggest casualty of the recent changes. Since that strategy is particularly useful for spouses who don't have a work history of their own, it was especially useful for the generation of retirees and near-retirees whose demographics include a higher proportion of single-earner families.
For younger people, though, two-earner families have become the norm. File-and-suspend isn't as important for couples where both spouses worked, because the value of spousal benefits isn't that much greater than what a spouse would receive from regular retirement benefits. However, the value of boosting the spouse's own retirement benefits through a restricted application is substantially higher when those benefits are sizable. Many younger couples planning for the long run would have found that filing as a spouse first would have given them the best opportunity for maximum benefits.
The repeal of restricted applications is a blow to some families' retirement planning. If you are old enough still to have the option of using the file as a spouse first strategy, make sure to consider it fully before you lose the chance forever.
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