Soc Security - value of recently closed loopholes

[Rapid Robert]

For a quick mental break from taxes, consider the following:

True/False? if a tax or government benefit loophole is closed, but there is a transition period where some people are "grandfathered" under the old rules, then those who are grandfathered in should always try to use the loophole while they can. In other words, are grandfathered benefits always better as a general rule? If not, why close the loophole?

Not that long ago, the rules about "file and suspend", and "deemed filing for spousal benefit" (not sure I have the exact correct labels) were changed, but there was a cut-off date. So my question is, if someone can still take advantage of spousal benefit filing, while letting their own benefit delay until age 70, is that almost always going to be a better benefit compared to not taking advantage of the grandfathered loophole?

More details: the amount for the spouse (lower earner) who would take the spousal benefit (50% of higher earner) at full retirement age (FRA), is just about equal to the spouse's own benefit at FRA. So, essentially the lower earning spouse gets an amount the same as own benefit would be, but it's based on the higher earner. Meanwhile letting own benefit go up 32% to age 70. Let's assume both spouses die at the same time, to eliminate the whole surviving spouse aspect.

[kathyc2]

For a quick mental break from taxes, consider the following:

True/False? if a tax or government benefit loophole is closed, but there is a transition period where some people are "grandfathered" under the old rules, then those who are grandfathered in should always try to use the loophole while they can. In other words, are grandfathered benefits always better as a general rule? If not, why close the loophole?

Not that long ago, the rules about "file and suspend", and "deemed filing for spousal benefit" (not sure I have the exact correct labels) were changed, but there was a cut-off date. So my question is, if someone can still take advantage of spousal benefit filing, while letting their own benefit delay until age 70, is that almost always going to be a better benefit compared to not taking advantage of the grandfathered loophole?

More details: the amount for the spouse (lower earner) who would take the spousal benefit (50% of higher earner) at full retirement age (FRA), is just about equal to the spouse's own benefit at FRA. So, essentially the lower earning spouse gets an amount the same as own benefit would be, but it's based on the higher earner. Meanwhile letting own benefit go up 32% to age 70. Let's assume both spouses die at the same time, to eliminate the whole surviving spouse aspect.

The cutoff for new file and suspend was 4.30.16. Are you saying you have someone that got in on it and asking if it makes sense to continue or switch to their own benefits?

[Rapid Robert]

The cutoff for new file and suspend was 4.30.16. Are you saying you have someone that got in on it and asking if it makes sense to continue or switch to their own benefits?

No, I'm talking about the other one, which is still open to folks born in 1953 and earlier. Under this one, at FRA, the spouse can apply for the 50% spousal benefit (50% of other spouse's FRA benefit amount), while delaying their own benefit until age 70. However, the other spouse must be receiving benefits first for this loophole, so the trade-off is that the higher earner may have to claim benefits earlier than they might otherwise, in order to enable the spouse to take advantage of the grandfathered loophole.

I realize that the best approach is to run a forecast and net present value analysis and all of that, but I'd like to take a shortcut and just assume that since the loophole was closed into the future, it must be favorable to take advantage of it while one can. But was it really such a great loophole?

This is in the context of the advice that we read over and over to delay until age 70 if you can. I don't agree with this in general, because for tax purposes, it's better to get smaller amounts over more years than larger amounts over fewer years (compounded by the need for RMDs at age 70.5). This might be an example where the higher earner is actually better off claiming earlier, since it enables the grandfathered loophole for the spouse. Or maybe the loophole doesn't really matter, assuming both spouses live to the same date and remain married -- that's what I'm trying to ask.

[Rapid Robert]

Numbers for discussion purposes:

Spouse #1: primary insurance amount (PIA) $2,400 (at FRA).
If delayed to age 70, $3,168 (32% increase)

(grandfathered) Spouse #2: PIA $1,200 (at FRA)
If delayed to age 70, $1,584 (32% increase)

So if spouse #1 starts own benefit at the FRA of spouse #2, then grandfathered spouse #2 can get $1,200/year spousal benefit for four years, then switch to $1,584 at age 70 (own benefit higher than 50% of spouse). But spouse #1 cannot wait until age 70 under this scenario. So do they come out ahead, or is it basically a wash either way?

Note that my numbers happen to have spouse #2 at exactly 50% PIA of spouse #1. Maybe that is the tipping point -- higher and you're better off, lower and you're worse.