social security

This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change.

When Social Security was established in 1935, most married couples consisted of a working spouse and a non-working spouse. “Spousal benefits” were enacted to ensure that a non-working spouse could receive a benefit at least equal to half of the working spouse’s benefit.

In 1996, Social Security changes encouraged people to delay the receipt of their benefits by enabling an increase in benefits of 8 percent annually until age 70. However, the law did not do away with the spousal benefit and a planning opportunity emerged.

File-and-Suspend: At full retirement age, one spouse could suspend his or her Social Security benefit until age 70, enabling the other spouse to receive spousal benefits (as early as age 62) equal to half of the other spouse’s normal retirement-age benefit amount.

File-and-Restrict: If the spouse applying for the spousal benefit had accrued his or her own Social Security benefit, that benefit would be restricted until age 70, increasing at 8 percent annually while the spousal benefit was paid out. At age 70, the spousal benefit would shut off, and the spouse would switch to his or her own increased benefit for life.

The Bipartisan Budget Act of 2015 did away with this strategy (those who have already employed it are grandfathered in). Under new rules that kick-in May 1, 2016 if a spouse applies for a spousal benefit, he or she is deemed to have filed for his or her own benefit, and will receive the greater of the two.

Under the new rules, here’s what you should know:

  • Once you apply for spousal benefits you are deemed to have applied for the benefits accrued under your own work record.
  • You can no longer receive a spousal benefit and wait for your own personal (increased) benefit amount later on. You will receive the greater of your own benefit or 50 percent of your spouse’s benefit.
  • The new rule does not affect benefits for divorced spouses or survivors.
  • “File-and-suspend” is still applicable for those who would like to delay receiving their retirement benefit and enable the spousal benefit for the other spouse.
  • If a spouse decides to delay receiving his or her own accrued benefits beyond normal retirement age, he or she will continue to earn delayed retirement credits equal to 8 percent a year between full retirement age and age 70. 
  • There are no delayed retirement credits for waiting to collect the spousal benefit.
  • Only one spouse may take a spousal benefit at a time (exceptions apply to divorced spouses).

City National Bank does not provide tax or social security planning advice.  You should consult with your own tax advisor regarding your particular tax circumstance. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.