Are you familiar with the deemed filing rule? Many people preparing to claim Social Security benefits haven’t heard of this rule, but understanding it is critical to maximizing your benefit.
Now, who is affected by the deemed filing rule, and what does it do? The deemed filing rule affects your spouse, provided your spouse files for benefits for the first time before their full retirement age and you are receiving benefits. If your spouse files for their retirement benefit before full retirement age, they will be “deemed” to have filed for any and all benefits available to them. So, if spousal benefits are available, your spouse will receive spousal benefits in addition to their retirement benefit – whether they want them or not.
Not only will your spouse receive both benefits, but they both will be reduced permanently as a result of filing early. This decision can never be changed. The deemed filing rules apply to worker benefits, spousal benefits and ex-spousal benefits; however, they do not apply to survivor, children, child-in-care and disabled children benefits.
Is there a planning opportunity to be taken advantage of? The answer is yes – for a little while longer, anyway. If you were born before Jan. 2, 1954, and you wait to file for benefits at full retirement age, you have the option of filing what is called a “restricted application.” Put another way, anyone turning 66 years old before January 2, 2020, can employ this Social Security benefits strategy .
The restricted application is a planning tool, used at full retirement age, that allows you to restrict your application for spousal benefits only and delay your own retirement benefit to age 70. This allows you to accumulate delayed retirement credits, effectively increasing your retirement benefit up to 32%. Utilizing the restricted application eliminates the requirement of taking all benefits available and, later, allows you to apply for another type of benefit. The restricted application is normally thought of when applying for spousal benefits only, but technically you also need to use the restricted application when applying for survivor benefits only, or when you want to restrict being paid retroactive benefits if applying for benefits for the first time after reaching full retirement age.
The deemed filing rules were changed by the Bipartisan Budget Act of 2015. The new rules require deemed filing for all people who turn 66 years old on or after Jan. 2, 2020. That means that 2020 is the first year deemed filing will affect everyone. With the new rules in effect, if you are receiving your retirement benefit and become eligible for spousal benefits because your spouse files for their retirement benefit, you automatically will be paid your spousal benefit. You will not have to apply for spousal benefits.
Prior to the new rules, you had the option of filing for spousal benefits and were not required to take them because the deemed filing rules only apply in the first month your benefits begin. Until then, deemed filing only affects people filing before full retirement age, and the restricted application is still available to them. The new law is designed to prevent you from collecting only spousal benefits while you earn delayed retirement credits on your retirement benefit.
A Team Effort
If you have a spouse, you must think of your claiming decision as a joint decision. What you decide to do will have a direct impact on your spouse and vice versa. The deeming rule is just one reason that looking at your claiming strategy as a joint decision is so important.
Let’s review the basics of spousal benefits. There are two key points relating to spousal benefits you need to know:
How is the maximum spousal benefit calculated? You are entitled to the difference between one-half of your spouse’s primary insurance amount less your full retirement age benefit. So, if your spouse’s full retirement age benefit is $2,500 and yours is $1,000, your maximum spousal benefit will be $250 ($1,250 - $1,000).
If you file for benefits at your full retirement age, you will receive your own retirement benefit of $1,000 and the spousal benefit of $250. This equates to 50% of your spouse’s full retirement age benefit, which is what most people think they will receive. If you file for benefits before full retirement age, both benefits are reduced individually.
There are not too many hard-and-fast rules when it comes to Social Security, but one of the few is that spousal benefits are at their maximum when you reach full retirement age. There is no advantage to be gained by deferring collection past full retirement age. If you do, you are leaving money on the table.