Washington Ends Social Security "File-and-Suspend" Strategy

Social security is a huge benefit most retirees count on in retirement. Planning when to file is a complicated issue and involves many different strategies to consider. Up until November of this year, retirees and their spouses were able to utilize a strategy known as "Double Dipping" or "File-and-Suspend". This allowed non-government workers the ability to elect both a spousal benefit and worker benefit at different points during retirement to maximize their overall social security benefit. The strategy is often best described through an example.

John is age 66, and Mary is age 62 and their monthly Social Security benefits are:

62 Full Retirement Age 70
John's Retirement Worker Benefit $1,600 $2,000 $2,640
Mary's Retirement Worker Benefit $880 $1,100 $1,425
Mary's Spousal Benefit $700 $1,000 N/A

In order to "double-dip" John would file for his full retirement age (FRA) benefits at age 66 now. Since her spouse is now receiving benefits, Mary is eligible to file for her spousal benefit and suspend her worker benefit out until age 70, earning deferral credits along the way. By utilizing the "double dip" strategy, Mary was able to receive $1,000 from FRA until age 70, and from age 70 on receive a higher worker benefit of $1,425 compared to if she just took her worker benefit at FRA.

Unfortunately, this strategy is no longer in effect after President Obama signed the Bipartisan Budget Act of 2015 on November 2, 2015. The new legislation sought to reduce the social security deficit by closing "aggressive claiming strategies" according to the government. Retirees may no longer claim a spousal benefit before they begin to receive worker benefits. In addition, married individuals or divorced individuals may not longer claim a spousal benefit and later change it to a workers benefit. I.E. no more "double-dipping" strategy. Luckily, those who have recently considered the strategy may be helped by a grandfathering provision included in the Act.

The grandfathering provision allows anyone who has reached the age of 62 by the end of 2015 to take advantage of the old rules. The grandfathering rule has another important feature to it as well. The 180 day grace period. This grace period means that as of May 1, 2016 no one will be able to "file-and-suspend" for benefits for a spousal benefit or to protect their right to file for retroactive benefits. What his grace period does provide, is the opportunity for anyone age 66 or older before May 1, 2016 to "file-and-suspend" in order to be grandfathered into the old rules.

We encourage individuals turning 62 by year-end, or retirees that have not filed for Social Security benefits but will turn 66 or older by May 1, 2016 to reevaluate their claiming strategy. When considering when to start taking your Social Security benefits, your decision should best fit your situation. Siena Wealth Advisors is a fee-only, fiduciary, registered investment advisor ready to help you and your family navigate these changing financial times.