Social Security Changes are Coming – Over 66 Act Now!

Every financial advisor worth his or her salt knows the sublime benefits of the well-known and easily-confusing social security strategy called “File-and-suspend.”  The strategy was for the higher wage earner to file for benefits but elect to suspend receiving them and so earn deferred retirement credits.  Essentially it allowed for the higher wage earner to get the higher payouts available to those who wait to take their social security benefit but still allow the spouse to claim the spousal benefit on the higher earner’s full retirement age (FRA) benefit.  The easy way to say it is that there was a loophole in social security.

Well, finally, congress passed and the executive signed off on legislation effectively ending “file and suspend.”  It is set to end for anyone claiming by May 1, 2016.  That means if you are 66 or will be 66 by April 30 then you need to claim your benefit and suspend.  Well, at least you should consider it because you may lose the opportunity.  Anyone who has already filed and suspended their benefit will be grandfathered but this eliminates one of the best social security strategies for married couples.

There will still be questions for filers and spouses where both spouses work but if only one spouse worked then it is starting to look like filing at full retirement age (FRA) is going to be the best bet.  The crossover point (to make it more beneficial to take it later if both spouses are the same age) moves to be 19.5 years instead of 9 to 11 years.  So think you’re going to live to be 90?  It may make sense to wait until 70 to take your benefits if you’re married.  The crossover point is so much longer now because you are giving up the option for your spouse to receive the spousal benefit for the years from 66 to 70 and the spouse will not receive a higher monthly benefit for waiting.

So yes, this is a game changer.  If you are near retirement and were thinking of using the file and suspend strategy it is time for you to start considering your options in the new system.  It’s a good thing, I think, when loopholes like this are closed.  However, any taxpayer that will receive a payout near the maximum amount will have effectively received a negative return on their investment.  So maybe instead of closing the loophole they could have kept the concept and made it more straightforward.  Why shouldn’t the spousal benefit go up if the spouse waits to take the benefits?  They probably decided not to do that because social security is already a beast of a program.  Maybe in the future they won’t just plug a hole but do what is really necessary and revamp the program entirely.

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