Social Security Deadline April 30th
Special Notice Regarding Impact of Bipartisan Budget Act of 2015
If you have a birthday before April 30, 1950 and the other spouse has a birthday before January 2, 1954, you may be able to elect the popular “file and suspend” strategy to enhance your retirement income by acting before April 30, 2016.
The countdown clock is ticking on the underutilized Social Security claiming strategy known as “file and suspend.” While you have to be at full retirement age and below age 70 to take advantage of it, you now must submit your request to file and suspend before April 30, 2016. Under new rules that are part of the Bipartisan Budget Act of 2015, that strategy will not be available beginning May 1, 2016. An individual will still be able to suspend benefits at full retirement age or later, but no family members will be able to collect benefits during the suspension period. The lump sum payout option for the look-back until age 70 disappears.
“File and suspend” is a popular technique for those reaching the full retirement age of 66 to file for his or her own retirement benefits and then immediately suspend them. Under existing rules, anyone who is 66 or older can file for Social Security benefits and immediately suspend them, allowing their benefits to earn delayed retirement credits worth about 8% per year up to age 70—which can increase the total benefits for both spouses by up to 32% a year over their joint lifetimes. Given that current government fixed income returns are in the 1-2% range, this is a rare safe retirement income enhancement opportunity.
Timely action triggers benefits for a spouse or other eligible family member while the worker’s own benefit continues to grow. It also creates an option to collect a lump-sum payout of suspended benefits. Filing for benefits also triggers auxiliary benefits for an eligible spouse, minor dependent child or disabled adult child. It also allows a worker the option of requesting a lump sum payout of suspended benefits in lieu of delayed retirement credits — a particularly valuable option for single individuals planning their retirement years.
A second strategy allows a spouse or qualified divorced spouse to claim only spousal benefits at full retirement age — worth up to half of the other spouse’s full retirement age benefit amount — while their own retirement benefit continues to grow to the maximum benefit amount at age 70. This is an important consideration for those with long life expectancies.
These are two separate deadlines and two different groups of people are grandfathered under the existing rules. To complicate matters further, the Social Security Administration has issued guidance on changes affecting one of the groups so far. The Social Security Administration issued an emergency message on Feb. 5 to its field offices. The agency specifically stated that anyone born on or after Jan. 2, 1954, will lose the right to file a restricted claim for spousal benefits in the future.
No guidance yet has been issued on the file-and-suspend rule that will eliminate the ability of anyone to collect benefits during a suspension and will ban lump-sum payouts. But anyone who is 66 or older before the April 30 deadline should seriously consider filing and suspending their benefits under existing rules.
Field Offices Providing Wrong Information or Refusing to Process Requests
A number of our clients as well as many others suddenly are having issues working with local offices. Boston University professor Laurence Kotlikoff, who also writes about Social Security claiming strategies, has detailed horror stories and his own attempts to get the agency to issue clearer guidance.
Our solution: Bypass the local office. If you are eligible, we now recommend that our eligible clients file for Social Security benefits online. You should clearly state that you want your benefits to start at 66 (or “as soon as possible” if you are older than full retirement age). In the remarks box at the end of the application be sure to write: “I want to suspend my benefits.” Someone from SSA will contact you within a few days to verify all the information before they process the application.
Many people already receiving social security and who are still less than age 70 may be collecting their benefits the wrong way. They can still make a change if they act promptly before April 30. Even if this email does not apply to you, please pass it onto a relative, friend or colleague for whom it may apply.
Contact us any time you or a close friend or family member has financial concerns. If you are a successful professional or retiree, call about our complimentary “Second Opinion Service.” An promotional copy of our ebook, Selecting the Right Advisor, is available upon request.