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For What It’s Worth is an occasional look at the meanings and origins of words and expressions investors may run into.

By Joel Dresang

In common parlance, a loophole is a technicality – an often obscure window of opportunity – that allows someone to get around a requirement or to exploit a benefit.

In the case of the Social Security file-and-suspend strategy, a loophole in administrative policies let married couples collect partial payments from a spouse’s retirement benefits even while that spouse suspended claiming those benefits. By delaying the claim from age 66 to 70, a retiree can earn 32% more in eventual Social Security retirement benefits through a deferred credit.

Congress and President Barack Obama closed that loophole as part of a budget bill enacted in 2015. Except for those already using the file-and-suspend tactic and those grandfathered in, the legislation bans spousal benefits on suspended claims.

The term “loophole” circles back to a common architectural and defense feature in medieval castles. The loophole was an embrasure, a narrow opening that’s beveled from the inside to allow archers and musketeers to fire from within the castle with scant exposure to direct hits from the outside.

In this sense, the loophole presented a slit of an opportunity to get something out of an otherwise impenetrable structure.

One major difference between the loopholes of yore and the modern-day equivalents in the quivers of bureaucrats and lawyers: The castle openings were there by design.

Joel Dresang is vice president of communications at Landaas & Company.

(initially posted Dec. 8, 2015)

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