Social Security’s File and Suspend Has Come to an End

The ability to file and suspend, on the other hand, didn’t come about until 2000 with the Senior Citizens’ Freedom to Work Act. “It allowed for voluntary suspension for people who’d already claimed Social Security benefits,” says Ben Westerman, Senior Vice President of HM Capital Management. “They realized they shouldn’t have started collecting, and they needed to work more.”

The combination of File and Suspend and spousal benefits is what created the popular strategy we saw until 2015. Rather than returning to work, couples used the strategy to collect at FRA, stay retired and earn delayed retirement credits.

In attempts to rein in spending and reduce deficits, Congress set April 30, 2016 as the last day anyone could file and suspend for the purpose of triggering a spousal benefit. “The government assessed the costs of these loopholes and used the savings to get the budget through Congress,” says Westerman. “The Social Security administration claimed the loopholes, including File and Suspend, were costing them around $10 million per year.”

Alternatives for Couples

Fortunately for soon-to-be retirees, the restricted application hasn’t been phased out yet. For anyone who turned 62 by January 1, 2016, the strategy is available in the same form as before. For widows and widowers, the new rules have no effects on survivor benefits, either. A higher earning widowed person can still collect survivor benefits while their own benefit matures.

For younger pre-retirees, however, the “deemed filing” rule has changed. No matter what age they file, they are deemed to be filing for the higher amount, be it their spousal benefit or their own. Without the ability to suspend, clients are essentially “stuck” with their decisions.

“Still, spousal income is something lots of people aren’t aware of, and it can be a lifeline for people who haven’t earned as much as their spouse,” says Daly. What many clients don’t realize, as well, is that spousal benefits even apply to divorcees, so long as they were married for at least 10 years and haven’t remarried since. Lower-earning divorcees don’t even need to wait for their exes to start collecting, as long as they’ve been divorced for at least two years.

“Beyond that, though, the main strategy is to delay your benefit, especially for the higher earning spouse” says Westerman. “Even if you blow your other assets, you still have this larger benefit to fall back on.”

Delaying Benefits More Important than Ever

Once the restricted application has phased out, there will be no more strategies for bolstering a couple’s combined SSI, and delaying benefits will be even more important than it is today. Those who wait until 70 can receive up to a 32 percent boost in inflation-adjusted benefits, while those who collect early are left with a 25 percent lifetime reduction. Those rates of return are hard to beat, especially considering Social Security’s automatic inflation adjustment.

“Generally speaking, it’s better to bleed down your other assets and delay Social Security as long as possible,” says Westerman. “That’s a tough sell for people because they’d rather not use their own assets.” If clients understand their increasingly limited options, however, they may think twice before making an emotionally motivated decision to collect early.