Many people are thoroughly confused about all the hype
coming out now about the looming deadline for Social Security beneficiaries. Yes it is true that the “File & Suspend”
strategy to get more benefits will expire, and that one must file and request
suspension of benefits no later than the deadline of April 29, 2016 to
take advantage of the strategy. But of
all the millions who are now searching for an explanation of what this all
means, and losing sleep worrying about what happens if they don’t do something
NOW, only a relatively small subset of beneficiaries is affected by this, and
no one will lose any benefits they are already receiving. So relax a little as we discuss what this all
means, and whether you can forget about it or need to do something.
The soon-to-be outlawed File and Suspend strategy allows a
beneficiary of Full Retirement Age (age 66 for now) to get the advantage of
Delayed Retirement Credits (an incentive for not taking benefits currently- see
www.socialsecuritybenefitshandbook.com
Section 704.6 for more information) which increase the monthly benefits payable
by up to 32% after age 70, while at the same time permitting a spouse or child
on the account to receive auxiliary benefits (up to 50% of the worker’s
benefit). Using this strategy, the
worker files at age 66, then immediately suspends payment of the monthly
benefit, but only for himself or herself. But the government just took this option away
from you with the Bipartisan Budget Act of 2015 signed into law last year by
President Obama, which is effective April 30, 2016.
First of all, if you were born after May 1, 1950, forget
about the File & Suspend deadline.
You can’t use this strategy. So
relax and move on. But if you were born
January 1, 1954 or earlier, Congratulations! You may still use a “Restricted
Application” strategy under certain circumstances to claim spousal benefits and
defer your own benefit to take advantage of the Delayed Retirement Credit (DRC)
incentive. So while you can relax for
now, don’t fall asleep. If you were born
January 2, 1954 or later, go back to
sleep, because that option was also taken away by the recent law. We will talk more about “Restricted
Applications” in a coming post.
Secondly, if you don’t have an eligible spouse or child, or one
who will become eligible before you turn age 70, you won’t get any extra
benefits. The strategy works to allow auxiliary
beneficiaries to receive benefits on your account even though you have
suspended your own benefits. So if you
don’t have anyone who can collect on your account there is no one to receive
the auxiliary benefits. However, if
you want to suspend your benefits for other reasons, you should request that by
the April 29th deadline.
We’ll discuss that below.
Thirdly, if you need the retirement benefit money now and
can’t afford to suspend the benefits (most people are in this category), or you
want the money now to avoid the risks of suspension (for example if you die
before reinstating the suspended benefits, that money is lost), or maybe even
if you figure you can get a better return than the 8% annual incentive provided
by the DRCs (good luck!) then you don’t have to do anything. Nothing you are already receiving will be
taken away from you.
But even if you are still working or otherwise not planning
to file a retirement claim until some future date, there is an advantage to
filing for the retirement benefit and suspending it before the April 29th
deadline. Whether you file and suspend
or not, you will still get the DRC incentive, so why bother filing and
suspending? Well for those of Full
Retirement Age by April 2016 (born on or before May 1, 1950) who file and
suspend by the deadline, a suspended retirement benefit can be reinstated
retroactively upon request without limitation.
So if you suspend now and, for example, two years in the future you need
money, you can recover the past two years of benefits. This can be a godsend if a financial
emergency strikes.
The same person who suspends benefits after
April 29, 2016 will only be able to reinstate benefits for the future,
effective the month after the reinstatement is requested. He or she cannot recover past suspended
benefits. So the file and suspend is a
sort of insurance against an unforeseen situation where you may suddenly need all
the past suspended benefits that have accrued but haven’t been paid.
We will talk about “Restricted Applications” and “Deemed
Filing” in a coming post.
