The Congress passed a new Federal Budget deal (Bipartisan Budget Act of 2015) this week that makes some significant changes to Social Security and the strategy of “file and suspend”. Just as background, many of us senior citizens have filed for Social Security but “suspended” benefits until we hit 70 years old. Why? Because we get about 8% per year in additional benefits. See my previous article about this here.
So what are the Social Security changes that might affect you?
- The Deemed Filing Rule. Today you can file for a “restrictive application”, you let your benefits grow and just file for spousal benefits (1/2 of your spouse’s retirement benefits). If you will be 62 or older as of 1/1/2016, there will be no changes to this deemed filing rule or to the restricted application strategy. However, if you are younger than that, two changes take place. First, the restrictive application goes away. If you file for any benefit, at any age, spousal or your retirement you will be “deemed” to have filed for all benefit types. Secondly, deemed filing now starts immediately for anybody when they become eligible for either spousal or their own retirement benefits if they’re already collecting one of these benefits (spousal or their retirement). This eliminates the restricted application strategy for those who have planned on it and will costs them a bunch of money. This was all along just a loop-hole but people took advantage of it and it costs all of us taxpayers a lot of money.
- File and Suspend Strategy. As I mentioned above it is a great strategy to file and suspend and earn 8% each year. Today, while you “suspend” your retirement you can get a spousal benefit. Under the new rules, suspension of benefit requests that are submitted more than 180 days after enactment of the bill, assume 4/27/2016 or later, there will be three changes: a) While your benefits are suspended, you cannot receive a spousal benefit, b) While your benefits are suspended, nobody (your spouse) can receive a benefit based on your work record, and c) You’ll no longer be the able to retroactively unsuspend (this is a little more complicated).
I guess the bottom line is that the government can change the rules at any time regarding those who get Social Security. In the above cases the changes are probably the right thing to do so that people to “game” the system, but it was a legitimate strategy.