You might already know that the Bipartisan Budget Act of 2015 made significant changes to the Social Security program. For many years, married couples took advantage of a loophole in regulations in order to maximize their benefits. Many couples will have to re-evaluate their plan to file for Social Security, because they won’t be able to use the once-popular “file and suspend” strategy. Unfortunately, the new rules could hit divorced people – primarily women – even harder.
In the past, the higher-earning spouse of a married couple could file for benefits at full retirement age, but suspend the payments until a later date. This would allow benefit checks to grow larger over time (about 8 percent for each year suspended). Meanwhile, the couple could still collect some money if the lower-earning spouse filed for their spousal benefits.
In many cases, women are the spouses with fewer work credits, because women tend to take time off from their careers in order to care for children. Since those who were married for at least ten years can still file for spousal benefits, the file-and-suspend strategy worked for divorced couples as well. Even if a former spouse (usually the husband) suspended his own benefit, the lower-earning spouse (usually the wife) could still collect some retirement income in the form of spousal benefits. This strategy formed a safety net for dependent spouses who later found themselves divorced.
Under the new law, the lower-earning spouse won’t be able to file for spousal benefits if their former spouse suspends his or her own checks. This could prove problematic for many divorced people, as they will have no control over how their former spouse chooses to file for benefits.
We can assume that married couples, who were planning to utilize the file-and-suspend strategy, will work together to find another solution for their retirement income needs. But the new regulations could prove problematic for many divorced individuals, who might not be able to depend upon spousal benefits to provide income.
For more information on Social Security, or retirement planning in general, call our office to schedule an appointment. We specialize in helping our clients navigate the maze of complex rules and decisions that affect their future.