New Social Security rules to end ‘file and suspend’ strategy

I’m not much an expert on Social Security (I am not collecting it at the moment), but I was planning to use the widely-encouraged ‘file and suspend’ strategy when my wife reached age 66 in a few years.

Under that strategy, at full retirement age, the higher earner in a couple would file for Social Security benefits, then immediately suspend benefits. The other spouse could then claim the ‘spousal benefit’ – half of the filing spouse’s benefit. That would continue until both spouses reach age 70 and both collect the highest-possible benefit.

While I considered ‘file-and-suspend’ to be a questionable loophole, it was legal and a lot of savvy people were planning to use it to maximize Social Security benefits. There was even a recent book that used file-and-suspend as a core strategy: ‘Get What’s Yours: The Secrets to Maxing Out Your Social Security.

But in the new two-year budget deal just hammered out by Congress, this strategy will be gutted. This is from the story in the Wall Street Journal:

Congress is putting an end to two Social Security filing strategies that many couples have used to add tens of thousands of dollars to their retirement incomes. ….

The strategies under fire—known as file-and-suspend and a restricted application for spousal benefits—have made it possible for both members of a couple who are 66 or older to delay claiming benefits based on their own earnings records while one pockets a so-called spousal benefit based on the other’s earnings.

While the new law shuts down the two strategies, some people can still take advantage of them—provided they act fast. For those for whom the strategies will be off limits, meanwhile, claiming decisions may become less complicated but also less lucrative.

I’d advise reading more on this topic, because if you and your spouse are currently 66 (full retirement age) you may have a six-month window to use the strategy. Otherwise, it looks like the loophole is closing.

I am sure we will be hearing more about this in coming days.


About Tipswatch

Author of blog, David Enna is a long-time journalist based in Charlotte, N.C. A past winner of two Society of American Business Editors and Writers awards, he has written on real estate and home finance, and was a founding editor of The Charlotte Observer's website.
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10 Responses to New Social Security rules to end ‘file and suspend’ strategy

  1. Jimbo says:

    When I heard that the the budget bill contained Social Security and Medicare “reforms”, I just cringed. Payments to Medicare will be cut to healthcare providers. The end result of this will be to kill off Medicare via attrition. Doctors that accept Medicare will simply disappear. The rules for collecting Social Security are changed. Due to a last minute amendment won’t go into effect until six months after the bill has passed. You’d think for such a major rule change that it would have been implemented over a number of years, not months. The sad fact of the matter is that the “throw grandma under the bus” philosophy of balancing the budget is in vogue these days. The last go around Boehner and Obama wanted to gut the COLA adjustment. That didn’t fly, so now they’re nibbling around the edges with other political theater that accomplishes precious little towards solving either the problems with Medicare or Social Security. Don’t do the obvious and remove the wage cap on wages subject to Social Security. Don’t make hedge fund manager’s performance bonuses subject to the Social Security tax (carried interest). Obama and the Democrats are just plain pathetic. The Republicans have managed to roll-back most all of the New Deal tax reforms that protected the middle class. They won’t be happy until they’ve gutted both Social Secuity and Medicare. Despite this, the working class continues to vote for Republicans! People used to vote with their pocketbooks. Now, they vote on their values. They were so terrified during the crash that they voted for their own economic self-interest. But that brief moment of clarity is long gone now. In some ways, you have to admire people for voting based upon their conscience. However, voting for Republicans to preserve “American family values” is just an illusion which has cost the American working class big time.

    • maynardGkeynes says:

      Unfortunately, the SS claiming changes are 100% Obama.. Ironically, the more he panders the Republicans, the greater their contempt for him. I for one (Democrat), will not miss him.

  2. tipswatch says:

    OK, here is the question, and let’s give an honest answer: Was file and suspend, in the way it was used by upper-income two-earner couples, an improper loophole that needed to be closed? Even though I planned to use this strategy, I always felt it was an especially creepy loophole that needed to be closed. However, I understand there are other situations – such as a divorced, low-income spouse formerly married to a high-income spouse – where it wasn’t so creepy. But it didn’t seem to be in line with the general purpose of Social Security.

    I can live fine in retirement without it, and I don’t need that creepy feeling caused by using it. Again, it was perfectly legal, but hard to understand why it existed.

    Have at me MGK.

    • maynardGkeynes says:

      I won’t have at you, because I like you. But, I love how the Republicans and Obama describe this as an “unintended loophole”. Nothing could be more disingenuous. If you’ve ever read a Supreme Court decision, you know that no one EVER knows what Congress intended, 1 year later, let alone 15 years later. That’s why they have 5-4 decisions. Think about the recent decisions on the Affordable Care Act. Obamacare. No one knew what they actually “intended”; same with with birthright citizenship in the 14th amendment, and the 2nd Amendment No one can say at this point that if someone said to Congress in 2000, “hey guess what, this will allow file and suspend, that they wouldn’t have said, “sure,” and passed it all the same. It was a different era, the millennial dot com boom, and a huge budget surplus under Clinton. To say it was an intended or unintended at this point is pure poppycock.

      What we do know absolutely are the words of the statute, and that language plainly permitted it: it was implemented by SSA without objection, and it stood unquestioned for 15 years. 15 years, BTW, is half a working lifetime for most people, not some law they passed yesterday. There has been real detrimental by many thousands, if not millions of seniors, many of whom now at or near retirement.

      But sure, Congress can change the law with a stroke of the pen, and it has. But then, the question should rightly be not merely whether this is a good policy or not, but whether, regardless, is it fair to impose it on people at or near retirement. The answer to me on that is an unequivocal — NO! Why? Many people in the 50s and early 60s have already made retirement decisions based on having this extra boost (like it or not); many others have started their smoothed IRA withdrawals from as early as age 59.5 based on what they thought they could expect from SS; they have clearly been misled into taking out more than should have, through no fault of their own, and may well find themselves in a deep hole in a few years. There are probably a dozen other reasons (widows; divorcees) no one has even thought of yet. That’s the way these things always play out. Meanwhile, people get hurt.

      I think it’s a mistake to evaluate this based on our own personal need or lack of need for $35,000 to $65,000 in lifetime benefits. We actually don’t who what the effects of this will have on so many different types of people and situations. Neither did Congress. If they did, would they have had to amend it the first day for what in retrospect what a totally obvious catastrophe they didn’t even see?

      Finally, the savings here are $9B over 10 years, or .002% of the alleged Social Security deficit. This had nothing to do with making Social Security more secure. This was purely political theater.

      • maynardGkeynes says:

        One other thing as far as your feeling creepy: how many non-working spouses who never worked a day in their life or contributed a dime to Social Security, do you think feel “creepy” about collecting one half of of their spouse’s benefit — not just for the three or four years you would get it, but for the next 30 to 40 years? But no one’s going after that. Why? Because they don’t frame that as a rich vs poor strategy scheme, but as some quaint little Leave it Beaver lifestyle, It’s not. The greatest luxury in the world is a stay at home spouse, and the only people I know who can afford that today are a heck of a lot richer than you or me. But we’re the ones the media, the Peterson institute, and Obama have framed as the scheming rich two earner couples trying to beat the system. And amazingly, they get even a smart guy like you to believe it. Cheers! MGK

  3. Hank Schonzeit says:

    Currently, if the major breadwinner is currently receiving Social Security, a spouse at full retirement age can collect spousal benefits and their own postponed Social Security benefits will continue to increase while whey are receive spousal benefits. The budget compromise closed this loophole, although with a grandfather clause. See a Forbes article “Those who turn 62 after this year will lose the ability to take only spousal benefits at their full retirement age. In effect, those born in 1954 and later, when they apply for benefits, will be deemed to be applying for their own benefits, as well as a spousal check. (Remember, they only get the one that’s larger.)”.

    The WSJ article you mentioned is only available to subscribers.

    Hank Schonzeit

    • maynardGkeynes says:

      Hank, I hope you know (1) They only added the grandfather clause at the last minute, AFTER THE BILL WAS PASSED BY THE HOUSE because people like me screamed bloody murder. (2) Now we need to scream bloody murder about near-retirees who have been totally screwed as well and are not grandfathered. (3) If they can get away with this, they will do it to you too eventually, regardless of age.. Do not be lulled into complacency.
      BTW, the WSJ article is filled with inaccuracies provide by AARP, which inexplicably, has backed this. Actually not inexplicably. AARP’s only interest is in selling overpriced annuities and useless maedigap plans. They could care less about seniors. They are a whore to the annuity industry, which will clearly benefit by making seniors less secure. Their tax exempt status should be revoked. Resign, as I have done. AAA discounts are better anyway.

  4. tipswatch says:

    MGK, it is frustrating when we can’t plan around crucial financial elements of our future. What will the capital gains tax be? Will dividends continue to get favored treatment? What will the estate tax cap be? What will the income tax rates be? What will be the Social Security rules? What will be the Medicare premiums? We can’t count on any of these.

    • maynardGkeynes says:

      I agree, but what think is a little different about this from some of the other things you mention, is that with SS, virtually every presidential candidate, the Bowles Commission, really the entire discussion, has been built around the implicit promise that whatever changes are made, those at or near retirement (say ages 55 or older), would be spared. It made seniors and their representatives more open to discussing these changes, and stopped the old and unproductive 3rd rail of politics reaction. Now we see we were duped. My reaction is: Gray Panthers, rise again!

  5. maynardGkeynes says:

    Don’t count on hearing more about it. The media is very hostile to Social Security and to “boomers,” and has barely covered the story. In the long run, it may be a good idea (or not), but it’s really unfair to make a major change like this on near-retirees and present retirees with no warning. Believe it or not, AARP, has actually been crowing about how great this is. I resigned yesterday. Frankly, the AAA discount is usually better anyway, so don’t let that stop you.

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