Social Security strategy deadline approaches
Social Security strategy deadline approaches
The Bipartisan Budget Act of 2015 made drastic changes to Social Security claiming strategies used by married couples to increase their lifetime benefits. The Act, which was signed into law on November 2, 2015, effectively shuts down the “file and suspend” and “restricted application” strategies that taxpayers have used in the past. However, the law did allow for a small window of opportunity to take advantage of these strategies before they are completely eliminated. Requests to file and suspend must be made on or before April 29, 2016.
File and Suspend
Retirement benefits will be permanently increased by the use of delayed retirement credits (DRCs) if the individual delays receiving benefits until after reaching full retirement age (FRA), which is age 66 for workers born between 1943 and 1954. DRCs are earned for each month an individual delays receiving Social Security benefits beyond the full retirement age up to a maximum of four years. Each year an individual delays receiving payments, his or her benefit grows by 8%. Therefore, for workers with an FRA of 66, Social Security benefits are maximized upon reaching age 70.
The file-and-suspend election allows an individual to file for benefits but suspend the receipt of those benefits until a later date. The individual continues to earn delayed retirement credits until he or she actually starts receiving benefits. The file-and-suspend strategy has two main benefits over simply waiting to claim benefits at age 70.
- Spousal Benefit. By filing and suspending, a worker makes his or her dependents (usually a spouse or child) eligible to receive benefits to which they are entitled. A dependent cannot receive benefits on the worker’s record until after the worker has filed for their own benefits. By electing to file and suspend, the retiree allows their spouse to take advantage of the restricted application.
- Lump Sum Payout. If at a later date the retiree regrets the decision to suspend his benefits (e.g. his life expectancy is reduced), he can receive a lump sum benefit retroactively to the month in which he filed and suspended benefits.
See our previous article for additional details on the use of the file-and-suspend strategy.
Window of Opportunity
The Bipartisan Budget Act of 2015 allowed for a six-month window in which an individual could still file and suspend benefits to take advantage of the two benefits outlined above. Note, however, that the restricted application is only available to individuals who turned age 62 before January 1, 2016. The Social Security Administration issued guidance on February 18 clarifying the effective end date for the file-and-suspend strategy. Though previously some Social Security experts had anticipated the deadline to be April 30, 2016, requests to file and suspend must be made on or before April 29, 2016.
Contact your WK advisor at (573) 442-6171 or (573) 635-6196 to discuss whether the file-and-suspend strategy makes sense for you.
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