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Robert S. Duxstad
Daniel P. Bestul
Lance A. McNaughton

New Budget Deal Brings Important Changes to Social Security

Posted: 11.12.2015  |  Author: 

Last month, two branches of our federal government compromised (really!) and authorized a full-blown federal budget. The agreement being so remarkable in its own right, its finer details didn’t receive much attention. Within its pages, though, was one change to the Social Security program that bears special mention. It applies to what’s commonly known as the “file-and-suspend” strategy. To understand how that works, it’s important to understand a few of the basics of Social Security:


(1) Full Retirement Age is a legal term whose meaning varies depending on the year of your birth. For our purposes, Full Retirement Age will be 66, which is what it is for those born between 1945 and 1954.


(2) The longer you wait to receive retirement benefits, the more you’ll get. If you start receiving Social Security when you’re 66, for example, you’ll get a monthly payment that’s larger than if you had started receiving at 62. Likewise, your payments will be even larger if you delay receipt of your benefits until age 70.


(3) If you’re (1) married, (2) at least 62, and (3) if your spouse is already receiving Social Security retirement or disability benefits, you can receive a spousal benefit, even if you’ve never contributed anything to the Social Security Program. A spouse’s benefit payment can be as much as 50% of what the other spouse receives in retirement benefits.


(4) Once you reach Full Retirement Age, you can apply for your own retirement benefits but then suspend receipt of those benefits until you reach an older age. Why would you do that? That’s where the “file-and-suspend” strategy came into play.


Here’s how “file-and-suspend” works. Imagine two spouses, Spouse A and Spouse B. Both are 66 years old. Spouse A wants to continue working until age 70, but Spouse B is ready to retire. If benefits started immediately, Spouse A would receive $2,000 per month and Spouse B would receive $750 per month. However, if Spouse A applies for benefits but then immediately suspends receipt of those benefits, Spouse B can still apply for the spousal benefit and receive $1,000 per month. Meanwhile, both Spouse A and Spouse B will see their own benefits continue to grow. In four years, Spouse B will receive about $990 per month instead of the $750 expected immediately; Spouse A’s benefit will increase to approximately $2,640 per month. By waiting four years for their own benefits to start, our couple increased their total Social Security income by nearly $900 per month. More importantly, the “file-and-suspend” strategy made the four-year delay more manageable, by providing Spouse B $1,000 per month in spousal benefits.


The “file-and-suspend” strategy isn’t the right or best approach for everyone, and it should be evaluated carefully by any couple considering retirement. And, thanks to the Bipartisan Budget Act of 2015, that evaluation needs to happen quickly. Effective the first week in May, 2016, “file-and-suspend” goes away; a suspension of an individual’s Social Security retirement benefit will also mean a suspension of the associated spousal benefit. While delaying receipt of your own benefits will still see them grow, there will be no spousal benefit available to help in the interim.


The good news, though, is that the law isn’t retroactive: any couple currently utilizing the “file-and-suspend” strategy will keep the benefits they’re currently receiving. In fact, even those who start utilizing the strategy between now and next May will be able to keep the benefits they start receiving. If you think the strategy might be best for you, don’t delay a thorough examination of your options. Time is running out.


Lance A. McNaughton practices estate planning, probate, business, and real estate law in both Lafayette and Green Counties in Wisconsin. He can be reached by e-mail at mcnaughton@duxstadlaw.com.


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