Last fall, the Bipartisan Budget Act of 2015 changed the rules to eliminate two popular Social Security claiming strategies for married couples: File-and-Suspend, and Restricted Application.
Who should be considering this?
Anyone who has at least met the full retirement age of 66, and is not yet age 70, should be considering whether to submit a file-and-suspend request by April 29. If you or someone you know is within this age range, please share this article and be aware that you/they have a very short window to meet the deadline. Anyone who wants to be “grandfathered” under the old (current, and more favorable) rules has only one week left to complete their Social Security application and suspension request by the April 29 deadline!
What is File-and-Suspend?
On the surface, it seems too good to be true. Let’s say you have a married couple, where (let’s say) the husband has earned higher yearly income than his wife. That means he has contributed more to Social Security over his working life. The husband files for Social Security benefits at full retirement age (currently age 66) and then immediately files to suspend those benefits.
As a result of this simple maneuver, the wife is now entitled to immediately receive Social Security spousal benefits equal to half of the husband’s full retirement benefits that were just suspended. She would do this if 50% of the husband’s benefit is higher than she would have received if she had simply claimed her own Social Security payments.
Because he suspended his benefits, the husband can continue working, and wait until age 70 to start receiving Social Security checks in his own name. Why would he do that? Because each year of deferral allows him to accumulate more credits—effectively raising his monthly benefits 8% a year, which is considerably higher than the inflation rate. At that time, the wife would stop claiming the husband’s benefits and start receiving her own Social Security checks. If she was working at the time, she might have raised the amount she could claim under her own name.
Presto! More money now, more money later.
The original rationale behind the file and suspend strategy was to encourage more seniors to continue working. The rationale behind ending it is that it was becoming a drain on the Social Security system. Moreover, Congress was looking for money to offset a huge increase in Medicare Part B premiums for individuals not yet receiving Social Security payments.
Notably, the tactic is a moot point for anyone who has already claimed benefits, or who doesn’t plan to delay benefits going forward. Nor is file-and-suspend relevant for widows (who don’t need file-and-suspend to coordinate between retirement and survivor benefits), nor for divorcees (who rely on the Restricted Application strategy instead, which remains available after April 29 for anyone who was born in 1953 or prior).
Nonetheless, for married couples (and some parents with children) who are in the age 66-70 window and have not yet claimed their benefits, but where one person could activate a spousal or dependent child benefit for someone else while delaying their own benefit, only a small time window remains to submit a File-and-Suspend request before the rules are changed forever! And arguably, anyone who is single and doesn’t care about spousal benefits, but simply wants to preserve the right to “undo” and reinstate their delay decision in the next few years, may want to consider submitting a request to File-and-Suspend by April 29 as well!
If you would like to discuss your social security benefits situation or any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first. If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch.
The MoneyGeek thanks guest writers Michael Kitces and Bob Veres for their contributions to this post.