Anyone turning 66 this year who has a spouse already collecting Social Security or who is potentially eligible for benefits should consider jumping through the loophole that slams shut in 2020. Or to be more precise, the loophole that closes for anyone turning 66 in January 2020 or later.
What’s the loophole? It’s the rule that allows 66-year-old retirees to collect spousal benefits on a husband’s or wife’s Social Security record while letting their own benefit continue to grow until age 70, at which point they get a 32 percent bonus added to their monthly retirement checks.
Some may wonder: Why is this considered a loophole and why is it closing? Normal Social Security rules do not allow a retiree to get spousal benefits if his or her own rate is higher. After all, benefits to a spouse are classified as dependent benefits. In other words, you generally don’t get such benefits unless you were financially dependent on your spouse. Obviously, someone who worked and earned his or her own retirement benefit that is higher than any spousal rate that might be due should not be considered “dependent” on the other spouse.
But a fluke in the language written into some amendments to a Social Security law that passed in the 1990s opened up that loophole and allowed millions of generally well-to-do retirees to “game the system” and collect dependent spousal benefits between age 66 and 70 before switching to 132 percent of their own. A couple years ago, Congress finally recognized their mistake. But instead of sealing up the loophole immediately, they established the January 2020 closing date.
So again, if you are 66 before then, you might want to consider filing a restricted claim. Filing a what, you may ask. Well, that calls for some more explanation.
Social Security rules have always included a “deemed application” policy. In other words, when you file for one kind of Social Security benefit, you are deemed to be filing for any and all other benefits you might be due. So that is why you normally cannot file for spousal benefits without filing for your own retirement benefits at the same time.
But what that 1990s loophole in the law did was to allow someone who was 66 or older to ignore that deemed filing rule. It allowed retirees to “restrict the scope of their Social Security application to spousal benefits only.” In other words, you could file for spousal benefits now and delay taking your own benefits until later. I’ve been calling that procedure the “file and restrict” method.
But again, that law is changing for people turning 66 beginning in January 2020. Today’s questions come from people turning 66 before then who are lucky enough to use the loophole.
I will turn 66 on Jan. 1, 2020. My wife is 64 and started taking her Social Security at age 62. Based on everything I’ve read, I guess I’m out of luck and can’t file for husband’s benefits on her record while delaying my own until 70. Am I right? Did I miss the deadline by a day?
A: You are one lucky dude! You actually made the deadline by a day. And here is why. I’ve discussed in this column before the strange little quirk in the law that says you legally attain your age on the day before your actual birthday. That normally means nothing. For example, I will be 70 on June 22 of this year. But I legally turn 70 on June 21. That’s no big deal to me and to most other people.
But it’s a huge deal, from a Social Security perspective, if you were born on the 1st day of the month. You technically turn your age in the prior month, so you usually can get one extra Social Security check for that month.
And in your case, it’s even a much bigger deal because you legally reach age 66 on Dec. 31, 2019. So that means the file and restrict loophole is still open to you. So in December of this year, you can file for husband’s benefits on your wife’s record and at 70, switch to 132 percent of your own retirement.
I am still working full time and will be 66 in October of this year. My wife is 60 years old. She plans to retire when she is 62 and start her Social Security then. That will be in April 2021. If I understand the file and restrict rules correctly, that is too late for me to use that maximizing strategy because it is after the January 2020 deadline. Am I right?
A: No, you’re wrong. Remember, I said the loophole closes for people turning 66 in January 2020 or later. But you turn 66 before then. So even though your wife will not file for benefits until April 2021, because you will be 66 this year, you can still employ that loophole. You could wait until then and file for spousal benefits on her record and save your own retirement benefits until 70.
But you’ve got to ask yourself if you really want to do that. You could simply file for your own retirement benefits in October when you turn 66 and just forget about any spousal benefits. You would be throwing away many tens of thousands of dollars in Social Security benefits if you wait until April 2021. You should run the numbers, consider the tax implications, and then decide what to do.
I just turned 69. I was planning to delay taking my Social Security until age 70. But I just did the math, and I think I will be ahead to start my benefits now. Do you think that’s a good idea? By the way, my wife is 66 and still working and she is also thinking of waiting until 70 to file for her Social Security.
A: I’m not a financial advisor. So I really can’t tell you what to do. But I can give you some Social Security food for thought. If your math says that starting your benefits now is attractive, why not consider filing now and taking the maximum six months of retroactive benefits. That big back paycheck you’d get could be even more attractive. But whichever way you go, then your wife could do the “file and restrict” thing and take spousal benefits on your record now while letting her own benefits grow until age 70.
