Friday, April 22, 2016

File & Suspend Social Security Benefits April 29, 2016 Deadline – Should I Worry?

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 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.