Social Security File and Suspend: Important Deadline and Changes
Up until now, if a married couple had one spouse at full retirement age (66 or older), file and suspend allowed the other spouse and/or a dependent to enjoy short-and long-term benefits. But after April 29, 2016, this will no longer be the case. After this date, if a spouse suspends his or her benefits, benefits for everyone involved – including the other spouse or qualifying dependent – will be suspended, too. Thus, a filer must take benefits and abstain from delayed retirement credits for the other person to also receive benefits.
With the file and suspend strategy, a married person – typically the one who makes the most money – can file for his or her own Social Security benefits at age 66 or older, and then immediately suspend those benefits, while their spouse can still file for spousal benefits. As a result, the couple collects an ongoing Social Security check, and, at the same time, the spouse earning the most money sees his or her benefits grow by 8% each year, allowing for a potentially higher benefit for the surviving spouse.
Restricted application is another strategy that will also change after April 29. This allows a spouse age 66 or older who had not received any benefits to restrict their choice to receive their spousal benefit only and delay their own personal benefit until the future (no later than age 70). With the new law, this option will only be available to those who turned 62 on or before January 1, 2016, thus keeping the luxury of restricting their claim to their spousal benefit if they wait until 66 at full retirement age.
However, let’s say they are eligible under the new law to file a restricted application at their full retirement age. If their spouse is not receiving their own retirement benefit or has not filed and suspended by April 29, 2016, then there is no spousal benefit available on which to file the restricted application. For example, if Tom is age 62 or older by January 1, 2016 and his spouse, Helen, is at her FRA or older by April 29, 2016, Helen would either need to file and suspend by April 29, 2016 or, failing that, file and receive her own retirement benefit to enable Tom to receive a spousal benefit on Helen’s record at his full retirement age.
Lump Sum Voluntary Reinstatement of Benefits
Another important change is the ruling on lump sums. Currently, a person who files and suspends at full retirement age can ask for all suspended payments to be paid in one lump sum at a later age up to age 70. And, through April 29, 2016, individuals at full retirement age can still use this strategy, as long as they file and suspend benefits. After the deadline, lump sum payments are no longer allowed.
What This All Means
Individuals will no doubt be upset about these changes because they can no longer maximize their combined Social Security benefits under the file and suspend strategy. However, according to a U.S. News and World Report article, some experts feel that the file and suspend strategy was never the actual intent of the original rules, and that the new rules will save the Social Security Trust Funds money and close previous loopholes in the Social Security program.
Help your clients understand these changes, especially with the April 29 deadline coming up so quickly.
For more information on Social Security planning: Ted Sarenski has recorded two podcasts on this subject. PFP Section members, inclusive of PFS credential holders, have additional resources on this topic on Forefield Advisor’s Social Security Resource Center and can consult The CPA’s Guide to Social Security Planning by Sarenski for other claiming strategies, all available on the AICPA’s PFP Section website.
Ted Sarenski, CPA/PFS, Blue Ocean Strategic Capital, LLC. Ted Sarenski is chief executive officer and president of Blue Ocean Strategic Capital, LLC, in Syracuse, New York. Ted is a frequent presenter on webcasts and at conferences, and authored the CPA’s Guide to Social Security Planning for the AICPA’s Personal Financial Planning Section.
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