Social Security: Beat the Deadline on File-and-Suspend
As we covered at the end of last year, the rules for Social Security have recently changed. The new rules mean the strategy of filing and suspending your benefits will no longer be beneficial for married spouses. But there is a window for some people to be grandfathered in under the old rules. Now, we have some of the details and deadlines.
Here’s an example of the old “file-and-suspend” strategy at work: A husband was able to file for benefits but not actually collect them (“suspend benefits”), while the wife could collect spousal benefits without affecting her own earned benefit later on. In essence, the couple had the opportunity to dip into Social Security without reducing the long-term benefit of postponing collection.
This tactic will no longer be allowed. However, for those of you that were at least age 62 by the end of 2015, there may still be a way for you to take advantage of the old rules.
I recently covered six example strategies for couples that are in their 60’s who can still take advantage of expiring loopholes. We now have more detail. What I want to emphasize in this article are three important points:
- For those of you that are at least full retirement age (66), and a spouse who is at least 62, it may be worthwhile to file-and-suspend, but the deadline is approaching! The deadline for file-and-suspend is April 29, 2016. After that, your options will be more limited.
- Even if you won’t be full retirement age by April, there may be an opportunity for restricted claiming of spousal benefits so long as you were at least age 62 by the end of last year.
- According to recent reports, workers at the Social Security offices may be unfamiliar with the deadlines, the rule changes, or who is still eligible to file-and-suspend. You must do your homework and know what you’re talking about when you head to the Social Security office.
First, you need to know who should take advantage of file-and-suspend. Basically, the way that you make money from file-and-suspend is to have one spouse suspend benefits while the other spouse files a “restricted claim” for spousal benefits ONLY.
This only makes sense if you’ll both be between ages 66 and 69 at the same time. If there’s a greater than four year age difference, you don’t need to suspend benefits since one spouse will be collecting by the time the other reaches full retirement age. The spouse should only claim spousal benefits once he or she reaches the full retirement age. If you’re at least 70 and already collecting, there is no need to suspend benefits for your spouse to file a restricted claim. This is where many people misunderstand the nuances of file-and-suspend.
However, even if there is a larger age difference or if you won’t be full retirement age by April, you may still be able to take advantage of restricted claiming. For those of you at least age 62 by the end of last year, restricted claiming is still an option.
That means that you and your spouse should coordinate benefit collection and potential restricted claiming even if you can’t take advantage of file-and-suspend. If you’re at least 62, but not yet 66, you should understand how you and your spouse can take advantage of restricted claiming. Depending on your age difference, restricted claiming may help you dip into social Security for at least a short time (you’ll see the specifics in my examples).
All of this is a lot to take in, and resources on the topic are often limited. If you call the Social Security office, you may get a knowledgeable worker, but it’s best to spend as much time as necessary to really understand the nuances of the file-and-suspend and restricted claiming so that you can control your own destiny.
Restricted claiming success story
I recently met with a woman whose husband was already claiming benefits. She was not yet full retirement age, but she was at least 62. I told her that she could still file a restricted claim for spousal benefits when she turned 66, and she wouldn’t reduce her delayed retirement benefit that she could start collecting at age 70. There was no need for her or her husband to file-and-suspend since he was already claiming. I suggested she bring a document to the Social Security office to prove her point. She had been already told by someone in the office AND BY HER FINANCIAL PLANNER that this would NOT be an option.
She brought the actual Congressional bill and pointed to Section 831. According to that document, the closure of the restricted claiming loophole “shall apply with respect to individuals who attain age 62 in any calendar year after 2015.” Second, I had her make sure she really understood the claiming rules by reading Michael Kitces. With the confidence in her knowledge of the rules, she went to the office and confirmed that she could file a restricted claim for spousal benefits without any negative consequences for her own earned benefits.
She responded with this note to me: “I just returned from my appointment at the local Social Security office in mid-town Manhattan. Thanks to you and your excellent research, I was prepared to fight for my rights. The Social Security representative that helped me immediately acknowledged that I am eligible for spousal benefits at my full retirement age because my birthdate is before 1953. It couldn’t have been easier!”
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