Divorced Women May Lose Social Security Benefit

The puzzle of Social Security added a few more pieces

          When Congress approved the Bipartisan Budget Act of 2015 last November, some Social Security strategies were eliminated and are now unavailable. These changes are complicated and dependent on age and dates of full retirement age and other factors. It is advised that you not rely on this brief summary, but use it as a guide for discussion with a qualified financial professional. [1]

  1. File and Suspend

This option will no longer be available after May 1, 2016. After this date, a person must file for Social Security benefits and actually receive benefits in order for a husband or wife to get a spousal benefit. (Before enactment of the new bill, spouses could file and immediately suspend payment until their spouse reached full retirement age (66 or 67 depending on your date of birth) allowing their own benefits to accrue during this time.)

“Sweet Spot”

There is time for those that will reach full retirement age by April 30, 2016, to take advantage of the “sweet spot” of time before April 30, 2016 and take advantage of the file and suspend option (or loophole as some have termed it.) [2] Those that do fall into this limited time period will be grandfathered in under the old file-and-suspend rules.

  1. Restricted Application

“Under the new rules, only those born in 1953 or earlier (turned 62 or older in 2015) will be able to file a restricted application for only a spousal benefit once they reach FRA – Full Retirement Age.”[3]

          Now when a spouse “applies for benefits they are ‘deemed to have filed’ for both their own earned benefit and a spousal benefit.” They will receive the greater of these benefits with no opportunity to choose one benefit and then switch to the other.

  1. Retroactive Lump Sum Payments

Prior to the change in the law, a recipient could suspend his or her social security payment and allow it to grow until age 70, knowing that if they needed the money they could “un-suspend” the income and still get all of the money they had accrued.

Now, the new law says that if you start to receive your benefits at age 66 and suspend your payment, but need to “un-suspend” them at age 68, say for a health need, you will no longer receive the amount you accrued for those two years you suspended your benefits in a lump sum payment, rather the benefits you receive will begin at the date you “un-suspend” and at the higher rate.[4]

According to one author, “Divorcees lose out.”[5] “The big losers, I think, in this will be divorcees – who may have a meager retirement available on their own record, and who could use a restricted spousal benefit to allow them to delay and pick up the additional credits to age 70” said Jim Blankenship, a certified financial planner with Blankenship Financial Planning in New Berlin, Ill, and author of A Social Security Owner’s Manual “ . . . these divorcees will be forced to take a lower benefit amount and cannot take advantage of the delay increase.”

[1] The following website is also available from the government to help you with these issues. https://www.ssa.gov/planners/retire/divspouse.html.

[2]Say Goodbye to Social Security ‘File-and-Suspend’ Strategy. http://money.usnews.com/money/retirement/articles/2015/12/04.

[3] Money Matters: New law affects Social Security filing strategies for some http://www.newsobserver.com/news/business/personal-finaces55880320.html

[4] Say Goodbye to Social Security (2015, page 2).

[5] Millions of Americans just lost a key Social Security strategy- Market Watch http://www.marketwatch/com/story/key-social-security-strategies-hit-by-budget-deal-2015. . .