Recent legislation signed by President Obama establishes an agreed-upon federal budget for fiscal years 2016 & 2017. The deal includes a section called “closure of unintended loopholes,” which references Social Security strategies known as “file and suspend” and “restricted application.” The President has been pushing for a change to these rules, and now changes have officially occurred.
Here’s an example of how the “file and suspend” strategy has been used:
Let’s use a traditional couple where the husband has always worked outside the home as the bread winner, and the wife has been a full-time homemaker, and let’s assume they are the same age. If the husband wants to wait until age 70 before claiming Social Security to maximize his lifetime benefits, he would wait until his Full Retirement Age (which for many baby boomers is age 66) and then choose to “file and suspend.” This means he would file for benefits but immediately suspend receiving any income.
The main purpose for his filing in this example is to “unlock” the wife’s ability to file for spousal benefits at 66 and begin receiving benefits equal to one-half of her husband’s benefits. If the husband doesn’t file and instead simply waits until age 70 to file, the wife also has to wait until age 70, therefore foregoing benefits for 4 years.
Under these new rules, the husband’s decision to suspend his benefits means ALL benefits payable based on his earnings record would also be suspended. Therefore, his wife cannot claim spousal benefits while the husband suspended his.
The new rules1 limiting suspended benefits like this will be effective for those attempting to “file and suspend” 6 months or later after the effective date of this legislation.
Feel free to contact one of our wealth planners. It’s possible, a smart planning decision could be extremely beneficial for you.
Published: November 5, 2015
Authored by: Joshua R. Wichman, CFP®, MBA
Direct Phone: 812-602-6319
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