Congress Puts an End to a Common Social Security Strategy

Filed under: retirement planning

Closeup portrait of a happy older couple smiling  and showing affectionAs you plan and save for retirement, you are probably doing what most couples do. You’re learning about Social Security and investigating your filing options. Depending upon when and how you claim your benefits, you could reap thousands more in benefits over the rest of your lifetime. Social Security is an important part of your overall retirement planning puzzle.

But there’s some important news you need to know about your various Social Security options. On November 2, Congress approved a budget deal that effectively closed on longstanding loophole, which allowed couples to draw potentially thousands more in benefits. Called the “file and suspend” strategy, it was never intended to be a filing provision in the first place, but many couples figured out the loopholes in certain regulations could help them earn larger benefit checks.

Under the file and suspend strategy, the higher-earning spouse would file for benefits at full retirement age, but suspend their payments. For each year that payments are delayed, the eventual benefits checks grow by about 7 percent. While the higher-earning spouse continued to work toward a larger future check, their lower-earning spouse would file for spousal benefits. These benefits amounted to about half of the higher-earning spouse’s benefit, and helped many couples better prepare for retirement.

Once the higher-earning spouse finally began receiving payments, the lower-earning spouse could then switch to their own individual benefit (if it was higher). If the higher-earning spouse were to die first, their spouse could then switch to the survivor benefit at the higher amount.

You can probably see how valuable this strategy was to many couples! Unfortunately, it will be eliminated in six months from the date the budget bill passed. What does this mean for you?

  • If you have already utilized the file and suspend strategy, you don’t have to worry. Your benefits will not change.
  • If you and your spouse will both reach full retirement age within six months (from November 2), then you can still use the file and suspend strategy. But you should meet with me first, to make sure this is the right plan for you.
  • If you and your spouse won’t reach full retirement age within the next six months, and you’re disappointed that file and suspend can no longer be a part of your future retirement strategy, then call me to schedule an appointment. We need to discuss ways to establish the income you need in retirement.

Call John Dubots at Dubots Capital Management (888) 605-8363 to discuss your Social Security strategy and retirement plan.