The Bipartisan Budget Act of 2015, signed by President Obama near the end of last year, eliminates a strategy that allowed married couples to maximize their Social Security benefits. Referred to as the "apply-and-suspend" strategy, it allowed couples to take advantage of spousal benefits and delayed retirement credits simultaneously. Congress concluded that the strategy threatened to harm the program's finances by undermining the formulas that ensure Social Security beneficiaries receive roughly the same amount of lifetime benefits regardless of when they claim them.

How did it Work?

A worker who reaches retirement age, currently 66, can elect to receive benefits or delay receipt and earn additional retirement credits, often at six or even eight percent per year. The spouse of the worker would also be eligible to receive spousal benefits, but only once the main beneficiary began receiving theirs. The strategy allowed the spouse to claim a spousal benefit, even when the main beneficiary suspended their own retirement benefit. Congress believed this undermined the purpose of spousal benefits, which is to supplement benefits paid to the worker when there are dependent family members.

What Happens Now?

After the new rules take effect, anyone voluntarily suspending their benefit after reaching age 66 will not be able to claim benefits based on anyone else's earnings record, and no one else will be able to claim benefits based on their records. This will have a significant effect on decisions people need to make about when to claim their benefits. For a spouse with the higher benefit, it still likely makes sense to defer claiming their benefit as long as possible; an increase of eight percent per year between age 66 and age 70 provides an advantageous investment opportunity for retirement. As for the spouse with the lower benefit, it may or may not make sense to delay, and this decision should be part of the couple's overall retirement income planning. The changes also will end the option to suspend benefits and later claim a cumulative lump-sum, or retroactive payment, equal to all of the suspended benefits and will sharply reduce the ability to claim additional benefits for spouses, dependent children and others.

Is there a Grace Period?

The apply-and-suspend strategy will no longer work after May 1, 2016. Going forward, a person must file for Social Security and actually receive benefits in order for a husband or wife to get a spousal benefit. However, for those who are at least 66 or who will turn 66 by April 30, 2016, there is still an opportunity to be grandfathered into the prior apply-and-suspend strategy. If a person suspends their benefits before the end of April, however, they can still revoke suspension and collect retroactive payments. For those who have already suspended benefits, they can get retroactive payments for up to four years. If a person doesn't claim a retroactive payment, they can continue to earn delayed retirement credits for up to four years.

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