Social Security Drop-Dead Deadline Fast Approaching

I was shocked that, what seemed like in the middle of the night, members of both parties in Congress passed legislation soon ending two of the best Social Security claiming strategies.  The first is called ‘File and Suspend’.  As an example, let’s assume a married couple, both age sixty-six (full retirement age for Social Security) and the wife is the lower earner (or no SS earnings).  The husband could file for his benefit which then allows the wife to file for the spousal benefit (generally equal to one-half of his benefit).  The husband would then ‘suspend’ his benefit thereby delaying it until a later date, typically age seventy.  By delaying his benefit, the amount of his future benefit would rise 8% per year.  At age seventy, he would begin taking his higher benefit and if he happened to predecease his wife, she would drop her spousal benefit but step into his higher benefit for the rest of her life.  Using this strategy, in many cases, allowed a couple to maximize Social Security retirement benefits.  The ability for a person to “suspend” benefits so someone else can receive benefits on that person’s record will no longer be available after April 30, 2016.  What this means is as long as someone has filed and suspended before the deadline, they are “grandfathered” into the old rules and spouses will be able to receive spousal benefits anytime thereafter while the other spouse delays to 70. 

Alert #1:  In order to qualify for the file and suspend strategy, you must turn full retirement age (66) before April 30th and actually have on record with the Social Security Administration that you have filed and suspended your benefit before that date (which is actually April 29th since April 30th is on a Saturday and Social Security offices are closed).

Also going away is the “filing a restricted application” strategy.  An example of this strategy is where a husband and wife both worked and both have their own Social Security benefits.  Let’s assume a husband turning age 66 and whose Social Security benefit at full retirement age (age 66) would be $2,000 per month.  His wife, age 65, chooses to take her early (and reduced) Social Security benefit of $1,500 per month.  If the husband files a restricted application he can take a spousal benefit (approximately 50% or $750 per month) based on his wife’s benefit amount while preserving his ability to postpone his benefit until up to age 70 (and receive the 8% per year increases in benefit amount).  This strategy is only available to persons who have never filed for Social Security benefits in the past.  If you have filed in the past and suspended, you don’t have the ability to “file a restricted application” going forward. 

Alert #2:  This ‘file a restricted application’ strategy goes away for anyone that did not turn 62 by the end of 2015 (born in 1953 or earlier).

These strategies are confusing.  For some couples, filing a restricted application may be better than file and suspend so don’t blindly file and suspend just to beat the deadline…because as noted above once you file, you cannot file a restricted application.

I realize this topic applies to only a narrow group of folks but it is a very big deal for those who qualify for either strategy but fail to do so because they were unaware of the changes.  Take a moment to think of someone who might fit this profile and share this column with them.  Be sure to consult with your tax or financial advisor before acting on my comments.

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