Congressional Budget Plan Ends Social Security File and Suspend
A popular Social Security planning strategy used by Americans mostly in their 60’s to expand their benefits, known as File and Suspend will be coming to an end in six months as a result of last week’s Congressional budget deal. Closely related and also receiving the ax under the Bipartisan Budget Act of 2015 is another rule permitting Restricted Application. The result is that many, especially married couples, will lose some planned-for Social Security payments. However, depending on their current age and current Social Security status the opportunity might still be available for another six months. Read on.
Under File and Suspend an individual who reached Full Retirement Age (currently 66) has been able to file for Social Security retirement benefits and then suspend them not receiving benefits at that time. The reason for filing and suspending is to allow others who could claim on the filer’s record, usually spouses but could be minor children, to receive benefits at one-half of the filer’s rate. The filer does not take his (or her) benefit thereby allowing him to continue to accumulate credits under the Social Security system. He then takes his benefit when he reaches age 70 or sooner if he so decides.
The benefit to a married couple was that one of them could still receive Social Security while the other continued to work and could claim a higher amount at a later date. Under Restricted Application, the spouse who did not file could claim first as a spouse and then later on her own record if she continued to work.
Some financial planners especially have focused in this area and have built programs on maximizing Social Security benefits. If you are signed up for one of those programs in the next few weeks I could bet that these strategies are already in the printed materials and are out of date. I have also written columns on the subject. See as one example, “Maximize Your Social Security Returns,” Daily Local News, April 24, 2012. Books have been written and software programs have been developed to cover the various possibilities since whether the strategies were helpful often depended on the relative age of the parties. For instance, filing and suspending could only be done when the filer has at least reached age 66. Generally speaking, the other spouse must be at least age 62.
This is all going by the wayside in six months. Under the initial plan, the Bipartisan Budget Act of 2015 would actually have taken Social Security from people currently receiving it under these strategies. That obviously would have been a nightmare and was corrected. The law will go into effect 180 days from the date the budget is signed by President Obama so there is effectively a 6 month grace period. If you plan on filing now and fit the criteria, expect that there will be a flood of applications at local Social Security offices.
The Trade Off. – Medicare and Social Security Disability. As with many changes there was a trade off in eliminating these plans. Without the changes it was expected that Medicare premiums for 2016 would have soared. Also, the Social Security Disability system was seriously in need of funds.
By eliminating File and Suspend, Social Security Disability is to be safely funded for several years into the future. Also, the Medicare annual deductible which had been projected to increase in 2016 from $147 to $223 will instead be held to $167.
The Medicare “B” premium has been $104.90 per month. It would have increased substantially for those who were not receiving Social Security and who paid the Medicare “B” premium separately. The budget deal as passed increased the Medicare “B” monthly premium to $120 instead.
There are still strategies. You can still delay taking Social Security and receive an increase of 8% per year. It also seems that, at least for spouses over age 62, but not for those under that age when the law takes effect, they can take the spousal benefit first and later switch to their own benefit on their own employment. Do not plan these strategies on your own. Get help. This is complicated.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.