The new legislation is cancelling ‘file and suspend’ and ‘restricted application’ strategies for maximizing Social Security benefits for seniors. While you might not have heard of these strategies before, it has become imperative that you check into them now as they are scheduled to be unavailable effective April 29’th 2016.
For the purpose of this blog we are going to discuss ‘file & suspend’ Strategy is detail. Let me explain how this strategy used to work and can still work for you if you take action before April 29’th 2016…
File & Suspend Strategy
Jerry (age 66) & Gina (age 66) have been married for 30 years, where Jerry is the primary bread winner and Gina is a stay home mom. Jerry is eligible for Social Security benefits of $2,000 per month but chooses to delay collecting his benefits till age 70 when his benefits will grow to $2,640 / per month (8% * number of years past 66 * $2000).
Gina has no benefits of her own, but is eligible to collect spousal benefits of $1000 (50 % of Jerry’s benefit) at her age of 66. But in order for Gina to start collecting this benefit at age 66 Jerry would have to file for Social Security benefits himself.
- Jerry’s benefits continue to grow at 8% per year till he decides to collect or till age 70
- Gina can start collecting $1000 / month for the next four years – A $48,000 additional income
- Jerry has the option of Lump sum Retroactive Reinstatement benefit ( we will talk more about this later in this article)
Key points to note here:
- If Gina was younger than Jerry, she does not have to wait till her turning 66 to start collecting spousal benefit. She can collect spousal benefit any time after she turns 62 as long as her spouse has turned 66 and has filed for benefits. Caution: If she collects before she turns 66, her spousal benefits would be reduced based on her age.
- If Gina has her own Social Security benefits she has accrued from work ( is not a stay home mom) , she can continue to delay collecting her own benefits and have them grow them at 8% per year till she starts collecting them or till she turn age 70. While she delays her own benefit, she can collect spousal benefits.
- Gina does not have to start collecting benefits the day Jerry applies for ‘file & suspend’. She can wait till she reaches full retirement age. The requirement is that when she chooses to start spousal benefit, Jerry should have done the file & suspend before that.
- If you have already used the strategy of ‘file & suspend’ then nothing will change for you.
- If your spouse has used the strategy of ‘file & suspend’ and you have not yet started taking your spousal benefits, nothing will change for you either. You can start taking your benefits when you are ready to do so.
- If you choose to retire at full retirement age and collect Social Security and your spouse chooses to collect spousal benefits based on the fact that you are collecting your benefits, nothing changes for both of you either.
- If you want to grow your benefits till age 70 but would like your spouse to start collecting spousal benefits earlier, you can only do that if you ‘‘file & suspend’ before or on April 29’th 2016.
Bottom line –
Spousal benefit is not going away. What is going to change is the option that your spouse can collect spousal benefit while you choose not to collect your own benefit till a later date.
Who can take advantage of this strategy before April 29'th 2016 ?
After April 29’th 2016, you will not be able to 'file & suspend’ your benefits anymore and your spouse would have to wait to collect spousal benefits till the time you start collecting your own benefits.
If you were born after April 30’th 1950, you have no choice as this strategy is no longer going to be available to you and your spouse due to the legislation passed in October 2015.
Lump sum Retroactive Reinstatement benefit
But another big hidden benefit of 'file & suspend’ strategy is Lump sum Retroactive Reinstatement benefit. To explain this benefit let me show you another example.
Jerry choose to work till age 70 and not collect his own Social Security benefits at full retirement age of 66.
If Jerry 'Filed and Suspended' his Social Security benefits at age 66:
Using number from the previous example:
Jerry Monthly Social Security benefit at age 66 = $2,000
If Jerry choose to change his mind at age 69, he will collect = $2,000 * 36 = $72,000 as lump sum payment for benefits not collected
He can still start collecting benefits going forward but will not receiving any payment for the period when benefits were suspended.
"Of course all of this goes away come April 30’th 2016."