Singles Disallowed File and Suspend

Kathleen Pender |

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The budget law that President Obama signed Monday kills the “file and suspend” Social Security claiming strategy, not only for married couples but also for individuals. Some married couples had been using the strategy — along with another called restricted application — to get higher lifetime benefits than they could under conventional strategies. But some singles were using it in a different way, as a hedge against failing health or financial circumstances. File and suspend has allowed a person who reaches full retirement age (usually around 66) to file for benefits and then suspend them so the benefits can continue to grow 8 percent per year until age 70. The ability to voluntarily suspend benefits was created under a 2000 law that was designed to encourage older Americans to continue working longer. But it also created opportunities that some saw as loopholes. An unmarried person, for example, could file for benefits at age 66 and suspend them, with the intention of claiming a bigger benefit at age 70. However, suppose that at age 69 he is diagnosed with a terminal illness or his portfolio takes a dive and he wishes he had taken benefits earlier. Because he filed at 66, he could claim retroactive benefits in a lump sum going all the way back to then, albeit at his lower age-66 amount. His future benefits will also be locked in at the lower amount. Under Social Security’s normal rules for retroactive benefits, it’s only possible to file a retroactive claim going back six months. These new rules apply only to requests for suspension after the effective date of the law. Anyone who has already requested a suspension of benefits, or does so in the next six months (if they reach full retirement age within that time) can still use the strategy. “Even if the request to resume occurs years from now, as long as the original suspension occurred prior to the effective date of the legislation (early May), the opportunity remains.” For couples, the usual strategy worked like this: One spouse, say the husband, claims benefits at age 66 and suspends them so they continue to grow. Claiming them lets his wife (if she is at least 62) claim spousal benefits, which are a percentage of her husband’s benefit. If the wife is younger than full retirement age when she takes her spousal benefit, she must stick with it for the rest of her life. But if she is older than full retirement age, she can let her own benefit continue to grow until age 70. At that point, she can switch to her own benefit if it’s greater than her spousal benefit. This strategy is called restricted application or claim now, claim more later. The new law will prevent the wife from collecting her spousal benefit until the husband actually begins receiving his. It also will prevent people from switching from a spousal benefit to their own benefit. Couples who are already using these strategies or who get grandfathered in during a grace period won’t be affected.