Social Security Loopholes Take a Hit

New changes to Social Security rules close off two popular loopholes. Will they affect your benefits?

As part of last year’s Bipartisan Budget Act of 2015, Congress approved some major changes to Social Security which could impact your benefits.

Designed to eliminate “loopholes,” the new rules will mostly impact married, dual-income couples. It is estimated that couples could stand to lose as much as $60,000 in benefits as a result of these changes.1

The “File and Suspend” strategy

The biggest change is the elimination of the popular “file and suspend” strategy. Leveraging this strategy, an individual could file for benefits at Full Retirement Age, then immediately suspend payments. The spouse could then file to receive a spousal benefit. The spousal benefit could be equal half of the benefit amount of the spouse who had suspended the benefit. This strategy allowed for a payout of benefits to the household, while both individuals still continued to grow benefits until age 70 at the rate of 8% per year.

Under the new law, spousal or dependent benefits can only be collected once the filer has started collecting their social security benefits.

There are exceptions. Anyone born on or before May 1, 1950 is still eligible to file and suspend. Executing this strategy will permit others in the household to become eligible to collect benefits based on the individual who has filed. To do so, paperwork must be submitted by April 29, 2016.

The “Restricted Application” strategy

Another change eliminated the ability for dual-earner couples to effectively double claim.  Under this loophole, a spouse could choose to file to collect only a spousal benefit upon reaching the full retirement age, then later switch to their own benefits which will most likely be higher due to delayed claiming (at a rate of 8% a year until age 70).

Under the new law, anyone born after Jan 1, 1954 will no longer be allowed to start collecting a spousal benefit upon full retirement age and delay collecting their own benefit. Those born before this date can continue to file for a spousal benefit at their Full Retirement Age and defer their individual benefit to a later time.

Also, the changes won’t necessarily apply to a widow or widower. A surviving spouse could still claim a survivor benefit and defer his or her own retirement provided the survivor has not already filed to receive benefits.

Determining the maximum possible Social Security benefits for a household can be quite complicated, depending on age, life expectancy, age disparity, income and other factors. We know Social Security can be an important part of your retirement income, so it’s a good idea to discuss your Social Security strategy with your Financial Advisor to see how it may impact your long-term goals. Reach out to me with any questions you might have.


1 New York Times,

Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC, its affiliates and Morgan Stanley Financial Advisors do not provide tax or legal advice. Individuals are urged to consult their personal tax or legal advisors to understand the tax and legal consequences of any actions, including any implementation of any strategies or investments described herein.

If you’d like to learn more, please contact Katherine Mackey, Financial Advisor, Morgan Stanley Wealth Management, 703 456 6054.

Article provided courtesy of a Morgan Stanley Financial Advisor.

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley. The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

Morgan Stanley Financial Advisor(s) engaged Reston Lifestyle Magazine to feature this article.

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