Skip to main content

Upcoming Webinar: Empowering Women Investors. April 30 @ Noon EDT

«  View All Posts


How the 2015 Budget Deal Affects Social Security in 2016

November 9th, 2015 | 2 min. read

By Jacob Schroeder

While the U.S. government dodged a possible shutdown with the passing of a two-year budget agreement, it also threw married couples a curve ball. Section 831 of the new bill changes two Social Security strategies, called restricted application and file and suspend, that allowed retirees to potentially get more out of their benefits. 

Here are the rules that have changed and how they may affect you.

Deemed filing extension eliminates restricted application

Previously, if you filed for Social Security between age 62 and Full Retirement Age (FRA), you were “deemed” to have filed for any and all benefits – both your own and on your spouse’s record. You effectively received the higher of the two but at a permanently reduced rate.

Once you reached FRA, however, you could potentially select either your benefit or your spousal benefit (if your spouse had filed). This is known as the restricted-application strategy. It gave you the ability to claim your spousal benefit while your own benefit continued to grow.

Under the recent budget deal, deemed filing has now been extended from ages 62 to age 70. That means the restricted application for spousal benefits is essentially eliminated. You will only receive the larger of two benefits, no matter when you file.

This change only affects anyone who turns age 62 after December 31, 2015.

Suspension of benefits also change

Prior to passage of the bill, you could file for Social Security but suspend the receipt of these benefits while a spouse or child files for benefits off of that worker’s record. Six months after this legislation is enacted, all benefits payable off of the record of a worker who suspended his or her benefits will also be suspended. No other individual will be allowed to receive benefits based on the earnings record of a worker who suspended benefits.

In addition to affecting payments to a spouse (who filed for benefits off of the worker’s record), it will affect any dependent benefits being paid. In fact, the new law may cut access to divorced spouse benefits.

For those that have already filed and suspended their benefits, you now have to reinstate your benefits if you want others to have access to benefits off of your work record. Otherwise, their benefits will cease after the six-month window.

This doesn’t mean the ability to suspend benefits upon FRA has been eliminated. It just means it is not as useful as an income-maximization strategy. File and suspend will remain a viable option for workers who wish to opt back in between ages 62 and 70 and be paid retroactively if something were to change in their situation.

Survivor benefits remain unaffected

It appears that survivors (widow/widowers) are still eligible for claiming separate benefits, allowing for some long-term income optimization.

What should future retirees do?

These changes are significant in that they limit how people can maximize their Social Security benefits, but they will likely affect only a minority of retirees.

File and suspend and restricted application have been used by a relatively small number of people. That’s because they can be complex and take a long time to start providing additional benefits. Given varying life expectancies, they do not work for everyone. Even when applied properly, a married couple typically wouldn’t receive more from Social Security (versus filing earlier) until their late 70s. If they retired in their early to mid-60s and relied heavily on their savings, the break-even wasn’t until their early to mid-80s.

Therefore, for most individuals who rely on Social Security as a primary source of retirement income, it is likely better to claim benefits as soon as you retire and are at least 62.

This is unlikely the last time changes are made to the Social Security system. For better or for worse, the government isn’t under your direct individual control so it isn’t worth being overly worried about future changes. Instead, focus on what you can control – budgeting, spending, income and savings – so that whatever happens in the future will likely have a minimal impact on you.