Social Security Changes Will Limit Future Planning Options

SS program changes limit future planning options.

A few days before Halloween, Congress managed to slip a couple of ‘tricks’ into the Bipartisan Budget Act of 2015 that impact many soon-to-be retirees and their retirement plans.  On October 28th, the House of Representatives approved a bill that could cost retirees tens of thousands of dollars in benefits by eliminating two Social Security claiming tactics known as file-and-suspend and restricted applications for spousal benefits.

Among the most significant changes in the Budget Act is the elimination of the file-and-suspend claiming strategies that many married couples have utilized to maximize their Social Security income.  Using the file-and-suspend strategy, a spouse who had reached full retirement age could file for Social Security benefits, but then immediately suspend receiving those income benefits until a later date.  The other spouse would then be eligible to begin receiving spousal benefits of up to 50% of the suspending spouse’s income benefit.  The file-and-suspend strategy allows both spouses to increase their own future Social Security benefits, while allowing one spouse to begin collecting the spousal benefit.  The file-and-suspend strategy has been an attractive strategy for many retirees because Social Security income benefits are increased by 8% for every year they are delayed beyond full retirement age, up to age 70.

Additionally, workers who are younger than 62 by the end of 2015 will lose the future ability to file a restricted application to claim only a spousal benefit and then switch to their own benefit later.

The moves by Congress are expected to protect the Social Security system’s long-term financial stability by eliminating some aggressive benefits claiming strategies.  The efficacy of the policy change may not work out as intended, however.  The anticipated savings from eliminating the file-and-suspend strategy could be offset by recipients claiming benefits earlier than they otherwise might have had they been able to utilize the two strategies.

The new rules concerning the file-and-suspend strategy and restricted application are slated to go into effect April 30, 2016, but those who use the file-and-suspend strategy prior to April 30th will be grandfathered.  This means that there is a very short window for those who have reached full retirement age, typically 66, to evaluate whether they wish to choose a file-and-suspend strategy before the window closes.  Additionally, those who are 62 or older by year-end will retain the ability to file a restricted application at their full retirement age.

While the elimination of the file-and-suspend and restricted application options may appear to simplify the Social Security decision-making process for some, the absence of these choices may impact other decisions when planning for retirement income.  For questions concerning these Social Security claiming tactics or other aspects of Social Security please feel free to call our office at 419-878-3934.