Social Security Deals Out A Pair Of Choices

In October Congress voted to phase out the “file and suspend” and “file a restricted application” strategies some people were using to maximize their Social Security benefits. It should be noted that no current benefits were cut and retirees already using either strategy may continue to do so – everything you are getting from Social Security today you will continue to get. Without getting too nitty gritty here’s what was and is now lost.

File & Suspend:
The rules say a spouse cannot collect spousal benefits until the primary earner collects, but every year the primary earner delays receiving benefit, the more they grow. Under the old rule the primary earner could file for benefits at full retirement age but then suspend collecting them. By doing this the primary earner’s future check grows at 8% a year until age 70, but the spouse can collect the spousal check immediately at age 66. The other aspect of this is if the filer-and-suspender changed their mind and wanted to undo the suspension, they were able to get a lump sum check for all the benefits that had been suspended.

Restricted Application:
Both spouses work and at full retirement age both file for benefits. However, one spouse files a restricted application where they only collect the spousal benefit check and let their own Social Security account benefit grow at 8% a year until taken by age 70.

Effective Date:
If you are currently using either of these strategies today you get to keep using them. If the primary spouse is at least age 66 before 29 April 2016 file and suspend can be used. A restricted application can be made up until 2019 if you were born in 1953 or before.

The Change:
This change has zero effect on existing benefits; no one’s check will be cut. It does affect couples that wanted to receive some benefits at retirement age, but still have the larger benefit grow until collected later. It does not affect survivor benefits.

If you have questions:
Get in touch with your local Social Security office. I’ve just hit the hot spots.

These strategies were unintentionally created when Congress passed the Senior Citizens’ Freedom to Work Act of 2000. The loophole they closed was resulting in this: You could have a couple where one spouse worked and made $80,000 a year and another couple where each worked earning $40,000 a year. Both couples paid the same amount of Social Security taxes, but by using these strategies the high earner with the nonworking spouse could collect thousands of dollars in additional benefits not available to the other couple. Getting rid of these strategies makes it all a little fairer and Social Security a little more solvent.

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