Social Security Loopholes (mini episode)

Speaker 1 (00:00):

Hello everybody, I'm Joel 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 gonna talk about has been available for the last oh seven years or so, it seems that lately people are, are, are wanting to figure out does this apply to them and can they still take advantage of this? So I wanna 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, that was designed at least in part, to close some of these commonly used loopholes in social security.

Speaker 1 (01:07):

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 filing, 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 a 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 gonna 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.

Speaker 1 (02:05):

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, 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 gonna be turning 69 here in, at the end of 2022. So technically, you still have an opportunity to, to use this loophole. Now granted, this loophole has closed for many people. I mean, the, 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 5, 6, 7 years, and it's made a tremendous impact.

Speaker 1 (03:10):

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 gonna be turning 69 here shortly. You c and 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 were 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.

Speaker 1 (04:08):

Your spousal benefit could be, could be a thousand dollars, could be $1,500 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, uh, 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 wanna stress that unlike what many people think, not all social security decisions are irrevocable.

Speaker 1 (05:03):

So maybe this would've 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, 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 wanna look at. So again, it's a small group of people I wanted to talk about it, 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 is, has been looking up lately because, uh, again, it's been incredibly popular as of late.

Speaker 1 (06:07):

Now, I do wanna 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 spouses 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 you're age 70 and you can switch at that time.

Speaker 1 (07:16):

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 gonna be available to you unless that marriage ends. And then we have one more area that, 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.

Speaker 1 (08:18):

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, you know, 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, and they're in a lot of different areas.

Speaker 2 (08:55):

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. Um, any questions, feel free to contact us. Retirement power hour 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, episode 12 of The Retirement Power Podcast, where we talked about social security loopholes. Again, if you have any questions, don't hesitate to reach out. But with that, we look forward to joining you next time on The Retirement Power Hour, where we help listeners invest wiser and retire better. Take care.