Jim, 66, is an architect and the sole proprietor of his own business. While he’s reached full retirement age, some ongoing projects have kept him from scaling back his practice and spending more time on the lake like he had planned. Realistically, he’ll be working part time for the foreseeable future. Jim’s wife, Mary, has just turned 66. She has worked in the past, including for the business, but over the past several years has been focused on caring for their grandchildren. Recently, they filed for Social Security benefits. Since Jim has had higher lifetime earnings, Mary will be receiving a monthly spousal benefit on Jim’s record. In Jim’s case, since he expects to continue working, they decided it made sense to delay collecting his benefits and letting his credits grow using a strategy called file and suspend.
By suspending Jim’s Social Security payments, they are betting on longevity. They have also worked hard to save for retirement, and are fortunate to have that peace of mind. By waiting, his benefit will grow an additional 8% each year and result in about a 25% higher monthly payout starting at age 70, which will also benefit the surviving spouse. The break-even point to recoup Jim’s Social Security payments that he would have received starting at 65, his full retirement age, is age 80.
Fortunately for Jim and Mary, they both were age 66 before the end of April 2016. Why is this a good thing? Because that’s when The Bipartisan Budget Act of 2015 goes into effect, and includes two key modifications to Social Security, one of which is the elimination of the option to file and suspend.
The other option that will no longer be available to claimants is known as restricted spousal benefits. Under this strategy, people who are at least 62 years of age could file for benefits, and restrict their application to spousal benefits only. Then, their individual retirement benefit continues to grow, untouched, until age 70, when they file on their own record instead.
The government considers the file and suspend and restricted spousal benefit options to be “aggressive claiming strategies” and loopholes in current law. They maintain that the ability to enhance and maximize benefits was not the original intention, and is not actuarially fair for all participants. Learn more
While the new law is intended to save money for the Social Security program, it creates a potential advantage for couples who are able to implement either the file and suspend or restricted application strategies, if they make sense for their situation. If you qualify, carefully consider the best option for you and your spouse and be sure to speak with your financial advisor. (Social Security Administration employees cannot provide advice.) The decision is ultimately up to you, but the clock is ticking.
This information has been prepared for educational purposes only and does not replace information provided to you by The Social Security Administration. The companies of National Life Group and their representatives are not affiliated with any government agency.