Anyone paying attention to recent political debates – either side you want to pick – knows that Social Security is a hot topic. Frequently called the “third-rail” for politicians (meaning that anyone who touches it dies, politically speaking), both the possibility and necessity of modifying Social Security is clearly in the cards.
An initial step in that direction occurred in the chambers of the Capitol late last month and was quickly signed into law by the President. Some far-reaching revisions in what has come to be known as “filing strategies” were implemented. For some couples, the passage of this law will reduce their benefits by many thousands of dollars over coming years.
Let’s begin by looking at the impactful, highest profile change: File and Suspend. File and Suspend is being done away with … soon. In only six months this feature will be deceased, leaving a trail of tears behind it.
File and Suspend was a legitimate tactic for maximizing a married couple’s retirement income. At full retirement age (FRA, in Social Security terminology) the higher wage earner could file for retirement benefits and immediately “suspend” those benefits by basically saying, “Wait, I am old enough to get full Social Security benefits (notice, it doesn’t say maximum benefits) but I want to hold off for a while.” That person could then wait until age 70 to turn on their own benefit, thereby maximizing their monthly benefit check. That little maneuver did a pretty interesting thing.
The spouse of that person if he or she was also at full retirement age could then file for “spousal benefits” instead of filing for his/her own. What’s the big deal about that? It allowed the spouse’s own benefits to continue growing at about 8% a year until age seventy. At 70, the spouse could then choose between taking their own benefits or continue with the spousal benefit. For some people, delaying taking their own benefit would result in many thousands of dollars in a few years.
That’s all gone now … unless you are lucky enough to be having your 66th birthday prior to May 1, 2016. No one will be able to collect benefits unless the primary beneficiary is receiving their own benefit.
There are additional changes that occurred at the same time as the termination of File and Suspend. We invite you to contact us for an individualized assessment of how your Social Security benefits will be impacted. And we also offer a free retirement planning session called a Discovery Sessionsm. With the recent surprise changes to Social Security, and likely more to come in the not-too-distant future, a carefully considered financial strategy for the long term takes on even great importance.