The file-and-suspend strategy was highly recommended by advisors as a way to increase a couple’s Social Security benefits (for either the worker and/or their spouse/eligible dependent) over their lifetime. Under the new law, many of those benefits will disappear after this month.
The new rules go into effect after April 29th so any retiree considering filing needs to move quickly. If you are an individual over the age of 66 (and younger than 70) it’s important that you be aware of the options still available to you. Even more importantly, you need to understand that you have only a very short time to act.
Late last year, President Barack Obama signed into law new changes to the Bipartisan Budget Act of 2015. In light of that law’s passage, the Social Security Administration recently issued upcoming changes to the strategy employed by many a future retiree, namely the file-and-suspend strategy and the various aspects of it.
New Rule #1
Under the new rules (and beginning April 30, 2016), however, one spouse must actually collect (not just be “entitled” to collect) the retirement benefits in order to obtain the spousal benefit for the other. The request for suspension of benefits of the primary worker triggers an across-the-board suspension of all payouts, even for a spouse or an eligible dependent. Similarly, a worker who requests a suspension of their benefits after April 29, 2016 and who also receives excess spouse’s benefit will have that benefit suspended, as well.
New Rule #2
Also under the current rules (and again, until April 29, 2016) a worker can request a lump sum distribution of their suspended benefits. After April 29, 2016, lump sum payouts go the way of the dinosaur. When a retiree requests reinstatement of a suspended claim, the lump sum option for the months of suspension is not available. Instead, the retiree will begin receiving regular monthly benefits in the month following the reinstatement.
Who Won’t these Rule Changes Impact?
These changes won’t affect any retiree who already has a file-and-suspend strategy in place.
Under the current rules (and until April 29, 2016), any individual who has achieved the minimum age of 66 can request Social Security retirement benefits and then immediately suspend those benefits. In so doing, their spouse or an eligible dependent child can claim those benefits even while you continue to work, thus earning even more benefits.
The Social Security Administration has confirmed that so long as the request for file-and-suspend is made prior to the deadline, it will be honored, regardless of potential processing delays.