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New Budget Kills Two Valuable Retirement Planning Tools

Last week I wrote about President Obama’s latest budget, and today I want to focus on two significant Social Security strategies that will be eliminated as a result of that deal. The first is file-and-suspend, where couples could increase their overall benefits by voluntarily foregoing them up until age 70.

Let’s look at a common example of a husband and wife, each age 66. The working husband qualifies for $2,600/month through Social Security, while the non-working wife qualifies for $1,000/month. The couple can’t receive any benefits until the husband files.

Using file-and-suspend, the husband could file for his benefits and suspend them. This would allow the wife to receive 50% of the husband’s benefits ($1,300) without claiming her own. She would then file a restricted application on his benefits, thus accumulating credits for not using her own. By the time they’re 70, the couple can receive the husband’s $2,600/month and the wife’s benefits, which by that time would have accumulated enough credits to be worth more than $1,300/month. This benefit-maximizing strategy, which trades time now for money later, is gone next year.

The second change is on those restricted applications. This budget makes it so that any filings for benefits are “deemed filings,” meaning anyone who files (husband or wife) receives the larger of either the worker or spousal benefit.

File-and-suspend ends six months after the bill was passed, roughly around May 2, 2016. If you are not age 62 by the end of 2015, a restricted application will also no longer be available to you. Millions of Americans will be affected by this, all in the name of protecting Social Security. It doesn’t protect hard-working people who did things the right way.

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