A Social Security strategy known as file and suspend ended in April, and the change could affect couples approaching retirement age, as well as divorcees.
“Under this strategy, the higher earner files for Social Security benefits when he or she reaches full retirement age but then suspends the claim,” writes Karen Demasters for Financial Advisor magazine. “The spouse can then claim benefits on the other person’s record. The higher earner lets his or her benefits continue to grow until age 70, and in some cases, the spouse is also able to let his or her own benefits grow until age 70.”
The Social Security Administration announced in December this option would be discontinued April 30. Those who already used the strategy to claim their benefits won’t be affected. The Social Security Administration is also phasing out another strategy, File a Restricted Application for a Spousal Benefit, writes James Mahaney for Forbes.
“(It) has a longer sunset provision under the 2015 legislation,” he writes. “This strategy currently allows an individual who has reached full retirement age to file for only a spousal benefit, and then to delay his or her own worker benefit. The new legislation limited this option to individuals who turned age 62 by December 31, 2015, and therefore only permits this technique to be used over the next eight years.”
Divorced individuals can use this technique, Mahaney writes, “if they were married for more than 10 years, are single when they file for spousal benefits, and turned 62 by the end of 2015.” These strategies encouraged the higher-earning spouse’s delay in claiming benefits while still allowing the second spouse income in the meantime. “The result was not only a higher Social Security worker benefit for that individual, but also a higher potential survivor benefit down the road,” Mahaney writes. “Higher survivor benefits are especially important for elderly women who have longer average life expectancies than their husbands.”
More changes could be coming for Social Security, writes Matthew Frankel for the Motley Fool.
One possible package could phase in the elimination of the earning cap, gradually increase the Social Security tax rate and increase cost of living adjustments, Frankel writes.
These changes could allow social security to remain solvent, and would place the most negative implications on high-income workers. “Most solutions that involve benefit cuts of any kind are strongly opposed by much of the population, and are therefore unlikely to gain any serious political traction,” Frankel writes. Regardless of what could happen, changes to file and suspend and filing a restricted application could affect those approaching retirement age who could have benefitted.
“Social Security’s promise of inflation-protected guaranteed lifetime income will continue to be a critical component of retirement security,” Mahaney writes. “And even without these two claiming strategies in the future, married couples should still think carefully about how to maximize the important benefits that will help carry them through retirement.”