After working and paying into Social Security for 40 years retirees can expect to get a check from the government each month. But for some married couples those checks are about to get smaller.
That’s because the Social Security maneuver called “file and suspend” has been banned for those born after April 30, 1950. Another move known as “restricted filing” has also ended for those under the age of 62 as of January 2, 2016.
Congress viewed these popular claiming strategies as a financial drain that largely benefited wealthy couples who could afford to put off collecting Social Security and moved to prohibit them last year through provisions in the Bipartisan Budget Act of 2015.
The disappearance of these two tactics — made official in May – could cost Americans hundreds of millions of dollars.
File and suspend, also known as voluntary suspension, was a strategy geared to married couples. Upon retirement, one spouse would register for Social Security and then immediately ask to suspend their payments. The other spouse would then become eligible for a “spousal benefit” which is half of the original benefit. Meanwhile, the suspended Social Security benefit would continue to grow at 8% each year until the first spouse turned 70.
That 8% adds up, If the couple delayed starting their benefits from age 66 to 70 they could increase their payout by 32% each year.
The 2015 legislation also eliminated “restricted filing,” for those under the age of 62 as of January 2016. This type of filing was meant for couples where both spouses qualify for their own benefits. This move allowed one partner to file for his or her Social Security and the other to live off of the spousal benefits that came along with it, delaying the second partner’s own benefit to a later date. Now, when one partner has filed for Social Security the other has no choice but to receive their own payout (or a spousal payout if larger) – in other words, the option to delay while receiving spousal benefits is eliminated.
So what are the options for couples who had planned on using these tactics to maximize their Social Security payout?
You can still grow your benefits by deferring your payout. Social Security grows by 8% each deferred year between your full retirement age (typically between 66 and 67) and 70. That means a $1,000 check at 66 could be worth $1,320 at 70 if you defer payment for those four years, says Jim Blankenship of Blankenship Financial Planning.
Deferring payment also continues to maximize the Social Security survivor benefit for spouses.
“If you claim at the earliest age of 62, you’re getting a reduction of 25%,” says Jean Setzfand, VP of Financial Security at AARP. “But if you wait until the maximum benefit of 70, that’s 32% higher. That’s a huge difference for someone who may be relying entirely on their social security income.”
Of course, these rule changes are a great excuse to take another look at your retirement plan and make the appropriate adjustments.