Congress is shutting down two successful Social Security claiming strategies that can potentially add thousands of dollars in additional income over a couple’s lifetime. The Bipartisan Budget Act of 2015 was signed on November 2, 2015. The good news: for those who move quickly, these strategies can still be utilized.
A Brief History
Available since 2000, The Senior Citizens Freedom Act was designed to allow people who had already filed for Social Security retirement benefits to suspend their benefits until a later age when their monthly payout would be greater. From this act, two very lucrative strategies emerged.
File and Suspend Strategy
Under the file and suspend strategy, the higher earning spouse, who is eligible for full retirement benefits at age 66, files for retirement benefits and then immediately suspends their benefits until age 70. Each year that the participant defers, benefits will be permanently increased by 6-8%. Additionally, the action of filing and suspending allows the other spouse to file a restricted application for a spousal benefit. This strategy allows a couple to have some income while, at the same time, allowing their retirement benefits to increase by up to a third by the time they reach age 70.
Restricted Application Strategy
Even if a higher earning spouse does not file as a claimant at age 66, he/she may still be able to file for a spousal benefit which would be based either on his/her earnings or those of his/her spouse. This strategy provides a couple with a source of income while allowing the higher earning spouse to defer his/her full benefit until age 70. Again, retirement benefits increase by 6%-8% each year that full retirement benefits are deferred.
Even though The Bipartisan Budget Act of 2015 is effectively killing the file and suspend, the terms of the new agreement give a six month grace period. Effectively, anyone who will reach their normal retirement age before April 29, 2016 will still be able to implement a file and suspend strategy. For those claiming a restricted spousal application, this strategy will still be available for anyone who is or will be age 62 by the end of 2015.
Yes, Congress is ending both the file and suspend and restricted benefit strategies. However, voluntary suspension of retirement benefits is still available. The claimant who defers their social security benefits from full retirement age to age 70 can be rewarded with nearly a one-third increase in benefits for the balance of their life. Claimants should consider their own health and the longevity of those in their family. No one has a lease on life but, assuming reasonable longevity, deferring benefits to age 70 is still a proven strategy to increase total benefits.
Mark McClanahan, CFP® is a managing director of RGT Wealth Advisors in Dallas, Texas. You can reach Mark at firstname.lastname@example.org.
Wall Street Journal Windows Open on Social Security Moves 11-2-2015 Anne Tergesen.
Fidelity Viewpoints 10-30-15 Debt Ceiling Deal: Changes for Retirement Planning.
Michael Kitces: Congress is Killing the File and Suspend and Restricted Application Social Security Strategies. 10-28-15