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Social Security Strategies to Use Now Before It's Too Late

Social Security Strategies to Use Now Before It's Too Late

The file and suspend strategy for social security is going away. The good news is that if you file prior to May 1, 2016, you can still take advantage of this important strategy available to individuals who qualify for social security benefits. The key to taking advantage of this strategy is to act fast before it is gone forever.

It is very important that couples who qualify for this strategy to work with their advisors to take a close look at their financial situation to see if they can take advantage of file and suspend. The strategy is more effective for some couples than for others, depending on ages, relative earnings histories, and life expectancy.

Collaboration on Capitol Hill

It is not always good news for average Americans when politicians put their differences aside and agree on something. The law change in law that came out of the budget deal reached in Congress, effectively eliminate the benefits of the file and suspend strategy.

Specifically, the law states that if the primary worker suspends Social Security benefits, then a spouse or children who are getting benefits based on that worker’s earnings history can no longer receive Social Security payments. In other words, the decision to suspend the worker’s benefits also suspends all other benefits related to that worker.

Refresher on the File & Suspend Strategy for Social Security recipients

The file and suspend strategy is designed to help retired couples take advantage of two different rules in order to maximize their benefits. To trigger a spouse’s right to claim spousal benefits, a worker must file for Social Security benefits. Yet if someone suspends their benefits beyond full retirement age, they can earn delayed retirement credits that will boost their eventual monthly payout.

The strategy itself is rather simple. The primary worker files for Social Security at full retirement age and then immediately suspends their benefits. The spouse then files for spousal benefits, which are allowed since the primary worker has already filed. At some later point, the primary worker has the suspension removed and starts collecting benefits, with a higher monthly amount based on how long the worker kept the benefits suspended.

The result of the file and suspend strategy is that couples can get one payment from spousal benefits while still allowing the primary worker’s future benefit to grow. By waiting from age 66 to age 70, a worker can get 32% higher monthly checks, and the boost has a positive impact on the amount of survivor’s benefits the spouse gets after the worker’s death as well.

Without the ability to get that spousal benefit to supplement their other income, many couples wouldn’t be able to delay taking the worker’s primary benefit until a later age, missing out on higher benefits for the rest of their lives.

Deadline to Act

The effective date of the law is 180 days after the Nov 2nd, 2015 passage of the bill, or May 1, 2016. If a qualified individual suspends his or her benefits before the May 1 effective date, he or she will be grandfathered in. This means that family members will are still eligible to get spousal or other benefits even if the primary worker’s benefits remain suspended after that date. The basic rules of the file & suspend strategy still apply: you have to turn 66 before the May 1 date. Unfortunately, if you do not qualify by the May 1st, 2016 date this strategy is not available for you and it never will be. The younger generation of American’s will hopefully have other opportunities to provide for their families when they reach retirement age.

Filing as a spouse first and the 62nd birthday rule

Under current law, if you haven’t reached full retirement age, then when you file a claim for spousal benefits, you’re automatically deemed to have claimed your own retirement benefits as well. If you have reached full retirement age, however, you can make a restricted application to receive only your spousal benefits. That lets your own retirement benefit grow.

The new law extends the automatic deeming provision up to age 70, wiping out the benefit of a restricted application. It comes with a fairly generous grandfathering provision that applies to anyone who reaches age 62 by Dec. 31, 2015. Anyone who meets the age requirement on that date can file a restricted application at any time in the future.

Contact us with questions about how this affects you.

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