Last year Congress passed changes to Social Security law that affects commonly practiced retirement strategies.   Recently, a number of people have contacted me and asked me to clarify for them some of these changes, specifically the difference between “File and Suspend” and “Restricted Application.” 

First of all, let’s review what has not changed.  If an individual wants to delay Social Security, they can.  For example, if you are married and neither you nor your spouse is claiming a spousal benefits, you can delay.  So, at age 66, if you wait a year you get 8% (2/3rds of 1% every month), if you wait four years to age 70, you get a 32% increase.  Let me be clear, Congress did not change that

File and Suspend used to allow someone of full retirement age (66 or older) to file for Social Security – to trigger the benefit  for a spouse or minor child –  while at the same time suspending their own benefit until it was worth more.  For example, a husband can go ahead and file but not take his benefit (suspend) which allows it to increase by 8% every year for four years until, at age 70, it is worth 132%.  In the meantime, he allows his wife to collect the spousal benefit.  At the end of April 2016, that ended.  Remember: This strategy affects both spouses.

Restricted App(lication) affects one spouse.  Previously, one spouse could take the spousal benefit when eligible, but not take their benefit.  Then at age 70, take their own benefit which has been going up by 8% a year.  The new rule now requires that an individual must take either the spousal or their own benefit, whichever is greater.  This rule is grandfathered for individuals under 62 by the end of 2015.

Though many young people may disagree, Social Security is here to stay for the long term and will pay benefits for the next 75-100 years.  However, there will be many “tweaks” along the way so be prepared for more and more changes over the years.  These changes could include raising the retirement age, elimination of the 8% increase each year you wait to receive benefits, phase-out of benefits for high income earners, etc., etc.

I hope that helps to clarify File and Suspend vs Restricted App for you.  As always, feel free to contact me should you have questions about a specific financial topic and I will do my best to simplify it here or via an Audio Insights call.