If you were born after 1953, there’s an old Social Security loophole that’s no longer possible for you.
The loophole involved claiming spousal benefits when first eligible, still working, accumulating delayed retirement credits on your own benefits, and then claiming your own benefit once credits had accumulated. In 2015, legislation passed that changed that, and now you can’t let your own retirement benefit grow if you opt to claim spousal benefits. This loophole was closed for anyone born after Jan. 1, 1954. Here’s what to know.
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What the old ‘claim spousal now, mine later’ strategy was
The “claim spousal now, mine later” strategy involved a spouse delaying their own benefit but claiming a spousal benefit. This former rule could work well for younger spouses who had lower lifetime earnings but still had a job. Their earnings history would grow as they worked, and in the meantime, they would receive spousal benefits based on the older, higher-earning spouse’s benefit.
A spouse would then opt out of spousal benefits and take out their own benefit once their benefit amount had grown. This strategy allowed spouses to collect Social Security right away while delaying their higher checks for the future.
This loophole was perfectly legal at the time, but a change to deemed filing removed it. However, there are still some strategies you can use to maximize your Social Security benefits. The first step is to know about deemed filings to avoid making a mistake in your strategy and adjust your claiming window accordingly.
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The deemed filing rule that changed the game
The Bipartisan Budget Act of 2015 was the decisive political policy that nixed this strategy. The deemed filing rule treats it as if you are applying for both your spousal benefit and your own benefit when you are applying for one or the other.
In other words, it is no longer possible to mix and match these benefits based on which one would give you a higher payout. If you commit to a spousal benefit at 62, you can no longer swap it out for your personal Social Security benefit at 70.
Social Security will default to paying out your retirement first. Then, it will close the gap between your retirement benefit and the spousal benefit, assuming the spousal benefit is higher. You can still claim spousal benefits, but you are locked into spousal benefits the moment you claim it, assuming your personal benefit is lower than your spousal benefit.
What couples can still do instead
The spousal benefit is still available. It lets one spouse qualify for up to 50% of the other spouse’s full retirement age benefit, but filing early will reduce this amount. This can be a good route for a spouse with a sparse work history or multiple low-earning years who wouldn’t receive a high personal benefit.
However, a spouse shouldn’t rush to claim the spousal benefit if they are still working and are in the highest-earning years of their life. This setup means you’ll likely have a higher personal benefit in the future, and if you take out Social Security before full retirement age, a portion of it will be withheld, depending on how much you earn.
It’s often a good idea to frame decisions based on which spouse has the higher benefit. It can make more sense for that spouse to delay for as long as possible, since survivor benefits are not subject to deemed filings. If the lower-earning spouse becomes the survivor, they end up with the deceased spouse’s full benefit.
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