Social Security Loopholes (mini episode)

The Bipartisan Budget Act of 2015 made what some would consider significant changes to a few key Social Security filing strategies. Specifically, the legislation removed some well-known Social Security loopholes that were used by many to increase spousal benefits. But, one of those loopholes was phased out over time, which means it could still be used by some.

Listen in to hear more about the restricted filing strategy, which could be used if one spouse was born in 1953 or earlier, and if the other spouse is already receiving Social Security. But, this loophole is closing quickly, so tune in to this mini episode to learn more!

Resources mentioned in the show

• [Blog] A Social Security Loophole that still Exist
• [Blog] Social Security: 7 Crucial Mistakes & How to Avoid Them
• [Podcast] Retirement Power Hour, Episode 9, Six Social Security Mistakes you Need to Avoid

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Disclaimer: All material discussed on this podcast is for educational purposes only and should not be construed as individual tax, legal, or investment advice. Investing involves risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results. Joe Allaria is an Investment Adviser Representative of CarsonAllaria Wealth Management, a Registered Investment Advisory firm. Information discussed on this podcast may be derived from third parties that are believed to be reliable, but CarsonAllaria Wealth Management does not control or guarantee the accuracy or timeliness of such information and disclaims all liability for damages resulting from such sources. Any references to third parties are provided as a convenience and do not constitute an endorsement.

Transcript

Joe Allaria: 0:00

Hello, everybody. I'm Joe Allaria and welcome to this brief episode of the Retirement Power Hour, this mini episode where I want to talk about a Social Security loophole that is closing quite quickly. And the reason that I wanted to do a mini episode is because I've just become aware that a blog post that I wrote back in 2018 has received in the last 30 days over 10,000 page views. So for some reason, this loophole is on the minds of people in the general public, even though the loophole that we're going to talk about has been available for the last, oh, seven years or so. It seems that lately people are wanting to figure out does this apply to them and can they still take advantage of this? So I want to talk about this. And to do that, we need to really go all the way back to 2015 because there was a piece of legislation passed in that year called the Bipartisan Budget Act of 2015 that was designed, at least in part, to close some of these commonly used loopholes in Social Security. And they were really trying to prevent people from double dipping on their benefits. One way people would do this is by filing a restricted application. And what that means is I could go to Social Security, and if I was going to file for benefits, I could choose between filing based on my own earnings record or based on my spouse's earnings record. So I could take a spousal benefit or take my own. And what people commonly did was they would draw based on their spouse's earnings record, and they would allow their benefits to continue to increase and accrue, perhaps all the way until they were age 70. And at that time, they would switch to their own much higher benefit at that time. So Congress, Social Security said, We're not going to allow you to do this anymore. That's double dipping. And so they began to phase the restricted application out, but it wasn't eliminated immediately. There was a phase out period for this restricted application loophole. And how do you know if you can take advantage of this loophole? Well, if you were born in 1953 or earlier, at least one of you, if you're married, either you or your spouse had to be born in 1953 or earlier to take advantage of this loophole. And so let's just say, for example, that you were born in November or December of 1953. That means you're going to be turning 69 here at the end of 2022. So technically, you still have an opportunity to use this loophole. Now, granted, this loophole has closed for many people. I mean, the the amount of people that this still applies to is probably a pretty small number, but it can still make a significant difference for those if you take advantage of it. Now, we have helped people use this loophole over the last five, six, seven years, and it's made a tremendous impact. But you can you may still be able to take advantage. So if one of you or your spouse was born in 1953 or earlier, and let's just say that's you, you're going to be turning 69 here shortly, and your spouse has to be receiving benefits. That's a big kicker. Your spouse has to be receiving Social Security benefits. And if they are, you can still do this. You can file a restricted application and receive a spousal benefit for one year until you're 70, and your benefit can continue to grow and accrue, and then you can turn around at age 70 and switch to your own. So you can only do it for one year, but let's just say you are planning on deferring your benefit until you're 70 years old anyway. Well, then what can you gain from using this? You can gain 12 months of getting a spousal benefit. Your spousal benefit could be a thousand dollars, could be fifteen hundred dollars a month. You know, so that's that's a lot of money, 12 grand, 15 grand, whatever it is over the next you know, 12 months, even if it's you know a thousand dollars, if you can get an extra thousand dollars, why not do that? So if again, if you or your spouse is born in 1953 or earlier, one of you, then you can do this. But the other spouse has to be receiving benefits. So what if you were both born after 1953? Well, you can't use this loophole. Uh, what if you were born one of you was born before 1953, but you've both been receiving benefits for more than 12 months? Well, you can't use this loophole. Now, I do want to stress that unlike what many people think, not all Social Security decisions are irrevocable. So maybe this would have applied to you, but you just started taking benefits a couple months ago or in the last year. There is a chance that you could do something called a withdrawal. And essentially you could undo your Social Security decision. And right on the Social Security website, it says if you change your mind about starting your benefits, you can cancel your application for up to 12 months after you became entitled to retirement benefits. This process is called a withdrawal, and then you can reapply later. So, you know, there's a chance if you if you started taking, you could potentially undo it. But again, if you haven't started taking benefits and you're about to turn 69 here late in 2022, and your spouse is receiving benefits, this is something that you definitely want to look at. So, again, it's a small group of people. I wanted to talk about it, and I'm gonna share that blog post in the show notes so that you can go to it and you can see what everyone else has been looking up lately because uh again, it's been incredibly popular as of late. I do want to mention this too, because there are still other loopholes out there for Social Security. You know, I call them loopholes, but uh, for example, this restricted application or this ability to switch from your own benefit or to your spouse's, and vice versa, that still exists for some people. And that group of people that I'm talking about are survivors. Let's say your spouse passed away, you still have the ability to do this switching of benefits. So, in the case where your own working benefit is less than your survivor benefit, you can begin receiving your own working benefit at age 62 and switch to your survivor benefit at your full retirement age. And that allows your survivor benefit to earn those delayed credits until that time. And then on the other hand, let's say your working benefit is higher than your survivor's benefit. Well, you can begin receiving a survivor benefit at age 60, and you can let your own working benefit continue to earn delayed credits all the way until your age 70, and you can switch at that time. So that is a scenario where you'll you'll still continue to have access potentially to this loophole if you had a spouse pass away. And it's important to note that if you remarry before age 60, those survivor benefits are not going to be available to you unless that marriage ends. And then we have one more area that this could apply. You you could use these sort of loopholes, and that is if you're divorced, if you're divorced, those same survivor benefits would still apply to you, even if you're divorced. So, you know, I got divorced, but my ex-spouse passed away. Those same survivor benefits that I just talked about would be accessible to you. So you could start taking that divorced survivor's benefit and let your own uh your own benefit continue to earn delayed credits and and vice versa. So there are a ton of different ways you can file for your social security benefits. This is just one loophole. This loophole is closing quite quickly. And if there's anything, if you have any questions on this, we can be of any help, don't hesitate to reach out. And by the way, we're talking only about Social Security. And in terms of loopholes, there are, and I don't know if loopholes the right word, but there are strategies out there in the area of investing, in the area of tax planning, tax loopholes that that you can use. Really, they're just tax strategies, investment strategies to help increase your bottom line. And they're in a lot of different areas. So if you're wondering about if you could take advantage of other loopholes, other strategies out there, then don't hesitate to reach out and we're happy to help. Any questions, feel free to contact us, retirement powerhour podcast.com. You can click the submit a question button and submit your question to the show. You can click work with me and receive a free retirement analysis. That's it for this mini episode. We look forward to joining you next time on the Retirement Power Hour, where we help listeners invest wiser and retire better. Take care.

Speaker 1: 9:25

Thank you for listening to the Retirement Power Hour Podcast. All material discussed on this podcast is for educational purposes only and should not be construed as individual tax, legal, or investment advice. Investing involves risk of loss, and investors should be prepared to bear potential losses. Past performance may not be indicative of future results. Joe Allaria is an investment advisor representative of Carson Allaria Wealth Management, a registered investment advisory firm. Information discussed on this podcast may be required from third parties that are believed to be reliable, but Carson Allaria Wealth Management does not control or guarantee the accuracy or timeliness of such information, and it disclaims all liability for damages resulting from such sources. Any references to third parties are provided as a convenience and do not constitute an endorsement.