As of May 1, 2016, married retirees will no longer be able to utilize a useful social security benefit strategy that previously allowed them to maximize the amount of benefits they could receive in retirement from the Social Security Administration.
This strategy, known as the “File and Suspend” strategy, made use of what some legislators considered to be an unintended loophole in the social security system.
The way file and suspend worked is, when one spouse reached full retirement age (66), he or she could file for their benefits and immediately suspend them so that they would not actually collect any social security, in effect deferring them until later. However, by virtue of the first spouse formally filing for the benefits, the other spouse could then collect spousal social security benefits (50% of the first spouse’s full benefits). This would not impact the second spouse’s right to file for benefits on their own account in the future.
In the meantime, while the couple collected the reduced (50%) spousal benefit, the full social security benefit of the first spouse would continue to grow at a rate of 8% per year while the benefits were suspended. The file and suspend rules allowed the benefits to be suspended until age 70, meaning the benefit could grow a full 32% in just four years.
By coordinating their benefits, couples could significantly increase the amount of money they would receive in retirement from social security.
But, as we previously mentioned, the government is closing the door on this lucrative option. When the new rules take effect on May 1st of next year, couples will no longer be able to collect spousal social security benefits while the full benefits are suspended.
Nonetheless, a fortunate few who hit the right retirement age at the right time will still be able to make use of this strategy before it becomes defunct. If you reach full retirement age by April 30th, 2016, you will be grandfathered in under the new rules so you can still use the file and suspend strategy.
The window of opportunity to maximize your retirement benefits by coordinating them with your spouse is closing quickly, so act fast to take advantage while you still can. Consult with an attorney at Brown & Sterling to analyze whether you can maximize your social security benefits before new the new rules prevent you from doing so.