The Social Security Administration issued an emergency message recently clarifying new rules in the Bipartisan Budget Act of 2015 that eliminate the lucrative (yet vastly under-used) “file-and-suspend” claiming strategy.
Anyone who will be at least 66 years of age by April 29 and submits a request to “file-and-suspend” retirement benefits (or simply suspend if already collecting) will still be able to take advantage of the existing loophole. The “file-and-suspend” strategy allows you to delay taking Social Security benefits while growing your future monthly payments by 8% annually (until age 70). The act of filing for benefits also opens the door for your spouse and dependents to begin collecting benefits. The “file and suspend” option is often coupled with the spouse of the filer concurrently submitting a “restricted application” which provides benefits based solely on the other spouse’s work record. This allows the spouse who filed a restricted application to have his or her benefits also grow at 8% until age 70. The official deadline to “file and suspend” is April 29, which is one day earlier than previously announced.
The seldom-used “lump-sum” payout is also still available as long as the request to suspend payments is made by April 29. However, by choosing a lump-sum payment, you are foregoing your annual 8% delayed retirement credits.
According to the Social Security Administration, filers that have requested a voluntary suspension of benefits by April 29 will not be affected by the Bipartisan Budget Act. The Administration also said it will honor requests that were submitted before the deadline even if the agency processes the request after the deadline.
For those who will not be age 66 by April 29, the only benefit filing and suspending will have is to simply earn delayed retirement credits. As an example, if someone filed for benefits before his or her Full Retirement Age, say age 62, that person may want to consider suspending his benefit at 66, earn delayed retirement credits until age 70, and bring his benefits back up to roughly 100% of his Primary Insurance Amount, i.e. Full Retirement Age benefit.
Divorced spouses who were married for at least 10 years and who are currently single can still collect benefits on their ex-spouse’s earnings record even if their former spouse files and suspends after the deadline.
The Administration has published examples of how the new “file-and-suspend” rule will be applied:
A survivor’s benefits under the new law will not be affected since retirement and survivor benefits are drawn from two different sources. Someone entitled to retirement benefits on his own record as well as benefits as a surviving spouse or surviving divorced spouse can still decide which type of benefit to collect and then switch to the other type of benefit later if the payment will be larger.
For example, a surviving spouse who turns age 60 may decide to take a surviving spousal benefit and allow her own benefit to grow until age 70. At that time, the filer switches off her surviving spousal benefit and switches on her own retirement benefit (if it results in a higher payment). There is a potential issue to watch out for here because the Administration noted if you suspend your benefits, you would not be able to collect survivor benefits during the suspension period. According to the Social Security Administration “Any number holder who has requested voluntary suspension of his or her benefits will not be able to collect excess auxiliary benefits (including widows/widowers) on anyone’ else’s record.”
If you or your spouse will be age 66 by April 29, the clock is ticking for you to maximize your Social Security benefits. Be sure to consider taking action before the lucrative “file and suspend” loophole is closed.
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