Change may be coming to your Social Security claiming strategy. Included in the recently enacted Bipartisan Budget Act of 2015, signed by President Obama on November 2, were some significant changes to Social Security. The changes in the bill eliminated two Social Security claiming strategies: “File & Suspend” and “Restricted Application,” that were gaining in popularity and could make it easier to increase your benefit checks.
The rules explained
Both claiming strategies revolved around the strategic claiming of the Social Security spousal benefit. The spousal benefit entitles one spouse to receive up to 50 percent of the other spouse’s regular benefit. That hasn’t changed. Both strategies, however, allowed one spouse to claim and receive a spousal benefit while they continued to delay claiming their own regular benefit. So while they were waiting to maximize the size of their regular benefit they still received some Social Security income in the form of a spousal benefit. They actually got paid while they waited, which made it easier for them to delay claiming their benefits.
Why these rules matter
The File & Suspend and Restricted Application claiming strategies did not originate with some creative interpretation of the Social Security rules, as some people claim.
In fact, very specific language was written into the Social Security rules in the year 2000, detailing both strategies and how retirees could use them. It appeared they wanted to give people the incentive to delay claiming their benefits and it worked. From 2003 to 2013, the percentage of people claiming their benefits at age 62 had fallen to its lowest percentage in almost 30 years, and the percentage claiming at age 66 had increased to one of its highest percentages in almost 30 years. Most experts agree that people should delay claiming their Social Security benefits as long as possible because the longer people delay, the bigger their Social Security check. Bigger monthly Social Security checks should make people more financially comfortable in their retirement.
Our government justified eliminating these strategies because they said only wealthy people were using them and they also increased the cost of the system. On the surface those sound like good reasons but when you look below the surface, the case becomes less clear.
Both the File & Suspend and the Restricted Application were available to everybody not just the wealthy. While wealthy people may have been the majority taking advantage of these strategies, middle class and working class individuals also could have used them if the government had done a better job educating them and publicizing the rules.
In terms of increased cost to the system, according to a research paper by the Center for Retirement Research at Boston College in 2009, if everyone who was eligible used these claiming strategies, the cost to the Social Security system would only increase by less than 2 percent. That seems like a small price to pay in order to make it easier for people to receive more Social Security income and have a much more financially comfortable retirement.
The lucky few
Some people can still take advantage of these strategies.
- If you reach your full retirement age, currently age 66, before May 1, 2016, you can still use the File & Suspend strategy. You must implement the strategy before that date.
- You can still use the Restricted Application strategy if you are age 62 or older by December 31 of 2015. In this case you don’t have to implement the strategy before that date, you can still use it after that date as long as you are at least 62 years old by the end of this year.
- If you are already using one of these strategies, you can continue to use them. People who are already using file & suspend or restricted application are basically grandfathered in and will have no disruption of benefits.
How Medicare is affected
One positive that came with the new Act, was it reduced the size of the Medicare Part B premium increase that would affect 30 percent of Medicare recipients in 2016. Those premiums were scheduled to increase from $104.90 per month to $159.30 per month, an increase of over 50 percent and one of the biggest increases in the history of the Medicare program. Now the monthly premium will increase to only $121.80.
So in the end the Bipartisan Budget Act of 2015 was good for Medicare recipients but bad for future Social Security recipients.
Brian Doherty s a nationally-recognized expert on Social Security claiming strategies and a top-rated speaker and media commentator on this topic. He is the author of Getting Paid To Wait, which reveals his strategy on how to maximize Social Security benefits.