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Social Security File-And-Suspend Ends: What Now?

broken bridgeThis blog targets those of you that are already at least 62 years old (born in 1953 or earlier) but have not yet filed for Social Security benefits. As many of you know, the recently signed budget bill closes the “loophole” that enabled the file-and-suspend and restricted claiming strategies. Please feel free to read more about the strategy and the amendment here and here.

The good news is that there are many people who are “grandfathered” in under the old rules, meaning that if they act quickly and smartly, they may still be able to take advantage of file-and-suspend and/or restricted claiming. I provide a few real-world examples below of what people who are at least 62 years old by the end of 2015 can do to take advantage of these disappearing benefits. If you’re not going to be 62 by the end of the year… no soup for you.

Below we have several examples. Feel free to jump to the example that best suits your situation. Please let me know if you have additional questions or concerns. The SSA website still lists the old rules, so we’ll keep an eye out for updates in order to confirm all of these strategies. Larry Kotlikoff also has a great rundown of many more situations in his recent articles here and here. Michael Kitces also has a thorough update on the rules here.

Example 1: One spouse under age 66, one spouse over age 66 and delaying benefits.

Example 2: One spouse under age 66, one spouse at least age 70 and collecting benefits.

Example 3: A husband and wife that are both between age 62 and 66.

Example 4: One spouse over age 62, one spouse under age 62.

Example 5: A person over age 62 with an ex-spouse collecting benefits.

Example 6: A single person over age 62 but under age 66.

Example 1: Betty and Al

Betty is 64, Al is 67. Both worked full careers and they were waiting until Betty was at full retirement age, 66, for Al to file-and-suspend his benefits. At that point, she would file a restricted application for spousal benefits. This would have resulted in spousal benefits for Betty from ages 66 through 69. They each would have filed their own benefits at age 70, maxing out long-term benefits.

What now? Betty and Al may still be able to take advantage of file-and-suspend! The grandfather clause says that anyone who has already initiated the suspension of benefits by May 1, 2016 will be governed by the old law. Also, anyone who is currently at least age 62 can still use restricted claiming.

This means that Al can immediately file-and-suspend his benefits, and Betty can still file a restricted application for spousal benefits at age 66 without jeopardizing either of their long-term benefits. This is the best case scenario, but they should act quickly to set this strategy in motion.

Note that anyone else that is already filing-and-suspending is also covered and doesn’t need to adjust their plans.

Example 2: Carol and David

Carol is 63, David is 70. Both worked full careers. David is already collecting benefits, but Carol is not. She was planning on filing a restricted application for spousal benefits at her full retirement age (66).

What now? People who are at least 62 years old are still allowed to file a restricted application for spousal benefits if their spouse is already collecting, so they can maintain their original plan! Because David is already collecting benefits, he doesn’t need to do anything special. Carol just needs to file a restricted application at age 66 and then switch to her own benefits at age 70. The amendment has not affected Carol and David.

Example 3: Gary and Mary

Gary is 62, Mary is 64. Both worked full careers. They had planned on having Mary file-and-suspend when Gary turned 66 so that he could file a restricted application for spousal benefits.

What now? This is the most complicated scenario because several options exist for Gary and Mary. Unfortunately, they are too young to take advantage of the classic file-and-suspend strategy, meaning that whatever they choose will likely provide fewer lifetime benefits than under the old rules. Both being at least 62, however, they can still file a restricted application for spousal benefits, but only if one spouse is actually collecting Social Security.

In other words, Gary can still get the restricted spousal benefits at age 66, but Mary would need to actually claim at age 68 — she would not be allowed to file-and-suspend and have Gary collect on her record. This may make sense since they’ll have additional income for 4 years, but it comes with the trade-off of lower long-term benefits than if they’d both just delayed until 70. If Gary is the higher earner, delaying until age 70 is wise because this will maximize the survivor benefit if either spouse passes away.

A different strategy would be for Gary to collect early benefits at age 64, and have Mary file a restricted application for spousal benefits on Gary’s record. If Mary is the much higher earner, this could make sense because she’ll get to delay her own benefit until age 70, which maxes out the survivor benefit. They’ll receive significant income for four years in the near future. Of course, this comes with a significant reduction in Gary’s benefit and the total benefit the couple will receive while both are alive and over age 70.

A third option is that Gary and Mary can both delay benefits until age 70. Since Mary is two years older, Gary could file a restricted application for spousal benefits at age 68, when Mary collects at age 70. This will allow them to max out benefits while both are alive and age 70-plus. But they won’t get as many additional benefits as they were planning on from the file-and-suspend strategy, which is a bummer.

Example 4: James and Linda

James is 64, Linda is 60. Both have worked, but Linda’s benefit is significantly lower than James’. They had planned on having Linda wait to file a restricted application for spousal benefits at age 66, when James would be collecting at age 70.

What now? Unfortunately, Linda no longer qualifies for restricted spousal benefits because she is under age 62. However, James could collect restricted spousal benefits. If Linda collects early at age 62, James can file a restricted application for spousal benefits on Linda’s record. It may not be a ton of money, but it adds up to extra benefits for those four years. James delays his own benefit until age 70, which maxes out the survivor benefit since he was the higher earner.

Because Linda filed early, they’ll get less for the years after James is age 70 while they are both alive. They’ll need to evaluate whether that tradeoff is worthwhile.

Example 5: Pam and ex-husband Paul

Pam is 65, Paul is 66 and already collecting Social Security benefits. Pam and Paul were married for 20 years and they are not re-married. Pam was planning on delaying her own benefits until age 70, but she wanted to file a restricted claim for spousal benefits at age 66.

What now? Good news for Pam. Because she is over age 62 today, she is still able to file a restricted application for spousal benefits on Paul’s record. She can stick to her original plan and delay her own benefit until age 70. If the divorce was at least two years ago, it doesn’t even matter whether Paul is currently collecting. She will be able to collect benefits on his record as an ex-spouse.

Example 6: Nancy

Nancy is 64 years old and single, never married. She was planning on filing-and-suspending at age 66. For single people, the file-and-suspend strategy allowed them to retroactively collect benefits at any age from 66 through 69 if they had a good reason to do so. For instance, if Nancy found out that she had a health issue at age 69, she could have retroactively collected benefits to whenever she filed in order to help pay for health care costs.

What now? No luck for Nancy. The file-and-suspend strategy for people under age 66 will not allow for retroactive benefits. In other words, there is no reason for her to file-and-suspend. Age 66, she can either collect or delay.

Jim Blankenship, an independent financial planner and author of “A Social Security Owner’s Manual,” has graciously agreed to review and fact-check these Social Security blogs. Check out his blog at http://financialducksinarow.com/.

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