The Social Security Administration announced that it is ending “file and suspend” and restricted applications. The strategies had been used by married and divorced couples to maximize benefits.

The changes only apply those who have not claimed benefits yet. (The new rules are not retroactive.) There is a 180-day window, which will end in April 2016, to use file and suspend. The restricted application is being grandfathered in for those who turned or will attain the age of 62 in 2015. Social Security determines a person’s age “on the first moment of the day preceding the anniversary of his/her birth.”

To explain how the strategies work, a fictional couple named Mike and Mary will be used.

File and suspend allows the higher-earning spouse (e.g., Mike) to claim benefits at full retirement age and immediately suspend them. Once Mike files, Mary (the lower-earning spouse) can file for spousal benefits. Mike’s suspension allows him to wait until age 70 to take his benefits, which increases his primary insurance amount through age, a potentially improved earnings record and any cost-of-living adjustments (COLA). The upshot is that Mary receives benefits based on Mike’s earnings record, while Mike maximizes his.

Restricted applications allow a person to claim spousal benefits and then switch their own earnings record later on. For instance, if Mary and Mike both have good jobs, Mary could file for spousal benefits at age 66 using a restricted application. She would receive 50% of Mike’s primary insurance amount. At age 70, Mary would switch to benefits based on her own earnings record. This would give her a stream of income earlier, while boosting her lifetime income.

The optimal claiming strategy for what to do depends not only on a couple’s age and earnings record, but also assumed longevity and the financial ability to delay claiming benefits. A basic rule of thumb is that lifetime income increases for every year Social Security benefits are delayed for those who live into their mid-to-late 80s or longer. A new article on claiming strategies is being planned for an upcoming issue of the AAII Journal.

Source: “Observations on What’s New With Social Security,” AAII Investor Update, November 12, 2015