Update 1. See our new File and Suspend article that explains how the law affects this and other claiming issues for people of different ages.
Update2 Nov, 3, 2015: The Budget Bill was approved by the Senate and then was signed by the President into law.
October 29, 2015 — The budget bill just passed by the House, if approved by the Senate and signed by the President, might keep the country from entering a government shutdown and budget chaos. But one of its provisions would have a profound effect on anyone considering or currently taking advantage of the popular File and Suspend strategies. The bill is far from passing the Senate at this point, but if it does hundreds of thousands of retirees are going to have to rethink a claiming strategy that is worth about $50,000 for many who take advantage of it. According to the Center on Budget and Policy Priorities, about 100,000 people are now taking advantage of this strategy.
File and Suspend
This popular strategy goes something like this: A couple retires at full retirement age (66 for most baby boomers) and both file for Social Security. The higher earning member immediately suspends his or her benefits, planning to claim again at the age with the maximum benefit, 70. Meanwhile their spouse claims a spousal benefit, 50% of what the higher earner was entitled to. That person could renounce the spousal benefit and later on claim on his/her own earning record, which would provide a higher benefit by waiting the extra years beyond age 66.
Section 831 of the bill, “Protecting Social Security Benefits: Closing Unintended Loopholes,” would change that – not only for future claimants but (in 6 months) for those currently taking advantage of this strategy. Here is what Social Security expert Laurence Kotlikoff wrote at PBS.org: “For those now under 62, the bill extends “deeming”, which now ends at full retirement age (age 66), through age 70.” Extending deeming basically means that you have to file for both your spousal and own benefit (SS will pay only the higher one) at the same time. This would effectively end File and Suspend, which Kotlikoff says will cost millions of Americans tens of thousands of dollars in benefits. Many others, including your editor, think this change fixes a strategy that seems like too much of a good thing. The strategy was an unintended consequence of a 2000 change to allow Social Security beneficiaries to suspend their checks after filing. To us it seems like a good way to protect Social Security benefits in the future, which we are definitely in need of. According to the Journal, Social Security Administration actuaries believe its repeal “..would save around 0.02% of the wages and self-employment income subject to Social Security tax.”
The Wall St. Journal “Budget Deal Puts an End to Popular File and Suspend Strategy“, and the AARP , (which supports the deal) have articles providing considerable details on this change.
Medicare premium relief
While the budget bill is negative for some SS recipients, the bill does have a positive impact on many people about to be hit by the proposed Medicare increases. Instead of 30% of recipients facing much higher premiums, now only 15% would be affected. Here is a link to the entire bill.
Approved by the Senate and Signed by the President
This bill just passed in the Senate, and then was signed by the President into law, so it is now a done deal.
For further reading
No SS COLA for 2016 – Huge Medicare Premium Increases Ahead for Some
Comments? Are you currently taking advantage of the File and Suspend strategy, or were considering doing so? Do you view it as a loophole that should be closed? Please share your thoughts and experiences in the Comments section below.