Back in November, Congress caused some confusion and scrambling in the retirement planning community, by making significant changes to the Social Security system. The “file and suspend” loophole, which allowed many couples to maximize Social Security benefits, was closed. But if you’re thinking that the new rule only affects married people, think again: Divorced couples, or at least one member of each couple, might be even more negatively impacted by the new rules.

Here’s how the old file-and-suspend strategy worked: The higher-earning spouse could file for benefits at full retirement age, but suspend payments to allow those benefits to grow larger. Meanwhile the lower-earning spouse would claim their spousal benefits (at about half of their higher-earning spouse’s benefit amount).

It wasn’t just married couples who took advantage of this strategy. In many cases, the lower-earning spouse has few work credits because they spent years caring for a family rather than building a career. Finding themselves divorced shortly before retirement, claiming spousal benefits through Social Security was preferential to claiming their own small (or non-existent) benefit check.

Now, divorced lower-earning spouses won’t be able to claim spousal benefits if their higher-earning former spouse chooses to suspend their own benefit payments. And we all know that simply asking your former spouse not to suspend his or her benefits probably won’t be a fun or productive conversation! This can make for a tough situation for many divorced people, who are left with little retirement savings of their own.

This situation underscores an important point: Both spouses in a marriage should have their own retirement savings accounts. Whether you are currently married or divorced, it would be a good idea to pay attention to the recent changes to the Social Security system. Call us to schedule an appointment, and we can help you decide if you should make changes to your own retirement plan.

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