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As you may have heard, President Obama signed into law the Bipartisan Budget Act of 2015 that, apart from averting a catastrophic default and delaying further arguments regarding federal spending, makes some drastic changes to the way people can claim their Social Security benefits. While we are still piecing together the full picture, essentially the process known as "file and suspend" will no longer be available. For those who do not know, the file-and-suspend strategy is commonly used by married couples to maximize their overall benefit and boost lifetime income significantly - sometimes up to even hundreds of thousands of dollars. Essentially, the higher-earning spouse files for Social Security upon Full Retirement Age and then immediately suspend that filing, allowing the benefit to grow even more, at least until age 70. At the same time, the lower-earning spouse can claim spousal benefits, which is half of the primary earner's benefits. In sum, file-and-suspend for married couples has always been a "have your cake and eat it, too" situation.
How is this going to affect people and their retirement? If you are already receiving benefits then you are not impacted at all. If you are at full retirement age or will reach it in the next six months, then you will still have the opportunity to file and suspend before the change takes effect on May 1, 2016. If you turn 66 after the deadline, then you will still be able to file and suspend, but you will no longer be able to have a spouse, or dependent child, collect on your record while your benefits are suspended. You will have to actually start collecting benefits to allow a family member to collect benefits worth up to 50% of your full retirement age amount.
In addition, anyone who reaches age 62 before year-end will still be able to file a restricted application for a spousal benefit, even if you don’t actually file until several years from now. However, if you do not reach 62 before year-end, then you will be subject to “deeming” rules. That means if you are entitled to both your own retirement benefit and a spousal benefit, you will be forced to file for both at the same time and be paid the higher of the two.
In any event, these changes merit a closer look at Social Security claiming strategies for many couples. This is especially true within the next six months.
As a financial advisor and someone who strongly believes that social security is a vital resource for bolstering income in retirement, this change is for the greater good and will help protect the financial security of the Social Security system for future retirees. An issue we come across often is people wondering if social security will still be available to them and, while we feel like even without this law it still would be, now the future of the Social Security program should be even more certain.
For the average American, Social Security is a complicated mechanism. More is needed to be done to further protect Social Security benefits and we still do not have a clear picture as to what additional changes may be coming, but we support any movement to stabilize a program that has helped and should continue to help, people who have worked towards attaining a dignified retirement.