On November 2nd, when Obama signed the Bipartisan Budget Act of 2015 he also killed a popular Social Security filing strategy frequently called ‘File and Suspend/Restricted Application’. The strategy, which we’ve written about in the past, allowed a married couple to claim some of their benefit early and claim more later through a strategic use of the spousal benefit and the file and suspend and restricted application provisions. Congress has decided to close the perceived ‘loophole.' Under the new law, it will no longer be possible to file a restricted application for just spousal benefits. Also, suspension of benefits will also suspend spousal and dependent benefits, essentially killing the strategy.
Perhaps the most interesting part of the new law is the way in which it will be phased in. While the new limits to restricted application will not apply to anyone who is already 62 or older in 2015, the suspension rules will kick in 6 months from now, grandfathering anyone who is going through file and suspend now but limiting anyone who tries the strategy after that. Since the law is so new, we are still waiting for clarification on how this rule will be enacted, but by our calendar, the new rule will apply after April 30, 2016.
While it may be unsettling that Congress is changing anything with Social Security, there are still many strategies which will allow retirees to maximize their benefit, the most straightforward of which is to simply delay taking benefits. The elimination of the File and Suspend provision eliminates one of the more sophisticated strategies for optimizing Social Security, but many people miss the basics and take Social Security far too early. There will be many articles written in the next few weeks from a ‘fear’ perspective emphasizing how Congress is taking away Social Security benefits. I would emphasize that this change, while important, is relatively small. In my opinion, the worst thing that could happen is that retirees become fearful that their benefits are going away and file for Social Security too early under a ‘get it while I can’ mindset.
Over the coming weeks, we will be reaching out to our clients who may be able to utilize the File and Suspend strategy under the grandfathering provisions. Remember, how you file for Social Security should be based on your individual retirement goals and in the context of your overall plan. These laws can be incredibly complex, but we are always here to walk through what is right for you.
"Bipartisan Budget Act of 2015." 2015. http://docs.house.gov/meetings/RU/RU00/CPRT-114-RU00-D001.pdf.