Popular Social Security Claiming Strategy Gutted in Budget Bill

Kitces, Kotlikoff blast Social Security spousal benefit changes that would end the 'file and suspend' claiming strategy

The changes to Social Security spousal benefits will be "devastating," Kotlikoff said. The changes to Social Security spousal benefits will be "devastating," Kotlikoff said.

The budget bill that passed the House on Wednesday and awaits Senate approval has retirement experts railing against a measure in the bill that would kill the "file and suspend" Social Security benefit claiming strategy.

Planner Michael Kitces and Boston University Professor Laurence Kotlikoff both slammed the measures to change Social Security spousal benefits under the deal in their Wednesday blogs. The "file and suspend" benefits claiming strategy allows a spouse to receive benefits while the main beneficiary suspends theirs in order to hold out for a bigger payment in the future.

In his Nerd’s Eye View blog, Kitces said that “it will no longer be possible to file a restricted application for just spousal benefits” under Social Security. “And with an extension of the 'suspension' rules that stipulate suspending an individual’s benefits will also suspend any benefits to other people based on the same earnings record, Congress has killed off the various ‘File and Suspend’ strategies to allow spousal and dependent benefits to be paid while still earning delayed retirement credits.”

Kitces notes that a recent amendment to the original legislation grandfathers "anyone currently going through file-and-suspend but limiting anyone who tries to suspend benefits thereafter."

Kotlikoff called the changes to Social Security spousal benefits in his Forbes blog on Wednesday "devastating."

For those now under 62, he writes, "the bill extend​s deeming, which now ends at full retirement age (age 66), through age 70. Deeming is the requirement that if a) you take your retirement benefit and are eligible to collect your spousal benefit, you are forced to take both at once and b) if you take your spousal benefit, you are forced to simultaneously take your retirement benefit."

Since Social Security effectively only pays the larger of the two benefits, "being forced to take both benefits at once means that you lose one of the two benefits."

Meanwhile, Treasury Secretary Jack Lew said at an event held by the Bipartisan Policy Center in Washington on Tuesday that Congress reached a “significant, bipartisan compromise on the budget” that would fund the government for two years and raise the debt limit “so that our country can continue to meet our obligations.”  

However, Lew added: “There still will have to be appropriations bills that will be signed into law, which means they have to be clean bills. There’s a month or more for that process to work through.”

Indeed, while the Bipartisan Budget Act, H.R. 1314, is “quite remarkable given Washington’s perennial contentiousness,” Andy Friedman of The Washington Update told ThinkAdvisor on Wednesday, the deal “provides only gross spending numbers for defense and domestic programs.”

Before Dec. 11, “Congress must apportion those numbers among the various agencies in an appropriations bill,” he continues, which “might not be a smooth process, particularly if House Republicans insist that the final legislation defund Planned Parenthood or some other initiative dear to the administration’s heart.”

Unlike House Speaker John Boehner, Rep. Paul Ryan, R-Wis., who was voted as House speaker on Thursday, “has promised not to introduce legislation that a majority of House Republicans do not support, eliminating the possibility of passing an appropriations bill with the support of Democrats and moderate Republicans as Boehner has done.”

Greg Valliere, chief global strategist for Horizon Investments, predicted in his Wednesday commentary that “at least 50 House Republicans — maybe as many as 100” — will support the budget deal, “as will virtually all Democrats.”

"This would be a huge victory” for President Barack Obama and for Rep. Paul Ryan, “despite [Ryan’s] clever comment that the [budget] process ‘stinks,’” Valliere said.

The Congressional Budget Office said Wednesday that the budget act is “fully paid for, will strengthen Social Security, and save taxpayers billions over the long term.”

CBO stated that changes in direct spending, including spending reductions in Medicare and reforms to Social Security’s Disability Insurance (SSDI), reduce spending in the budget window by $47.56 billion. 

“Coupled with additional revenues and savings from enhanced program integrity reforms, offsetting another $33.4 billion, the $80 billion cap adjustment in the two fiscal years is fully offset,” CBO said.

(The spending cap was set in a 2011 budget agreement.)

CBO also reported that the Social Security chief actuary confirmed that reforms in H.R. 1314 to Social Security’s Disability Insurance program will save taxpayers billions. The bill seeks to tighten eligibility requirements for Social Security disability insurance.

The actuary stated that from 2015 through 2025, “we estimate that OASDI program cost will be reduced by between $5 billion and $9 billion.”

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