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 extends 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.”