Social Security: Should I File and Suspend?

Sorry to break it to you, but the short answer is you won't be able to for much longer.

Social Security is top of mind for many retirees and pre-retirees as it is often an integral part of a couple's income in that last third of their life. The Social Security system was initially setup as part of President Franklin D. Roosevelt's economic reform during the Great Depression to offer older people who were unemployable an avenue for income and insurance.

When the program was rolled out, the "full retirement age", which is where a participant starts to receive their full benefits alloted to them under the program, was above the average life expectancy. Nowadays, the average life expectancy of a new born is roughly 78 years old (and I would bet a lot of money that increases significantly over the course of a new born's life due to the advances in medicine we are experiencing) while the full retirement age under Social Security is 67 years old for someone being born today.

Since the program is funded by current workers paying into the system (some would define this type of arrangement as a Ponzi scheme, but we won't go that far... what choice did the government have back in 1935?), the program has become massively underfunded. Liabilities have ballooned and the contributions to the program (SS taxes) have not kept up with the growth in the liabilities.

In an effort to curb the growth in liabilities, the government started by increasing the full retirement age, meaning the later you were born the older you need to be in order to claim your full social security income. Now, they are starting to find other ways to curb the liability growth. Here's the meat:

The House and Senate have now passed a bill that will eliminate one's ability to file and suspend.

What does this mean? The WSJ says it best: 

"The strategies under fire—known as file-and-suspend and a restricted application for spousal benefits—have made it possible for both members of a couple who are 66 or older to delay claiming benefits based on their own earnings records while one pockets a so-called spousal benefit based on the other’s earnings.

To do this, one individual files for benefits and suspends them, while the other files a restricted application to collect only a spousal benefit—not his or her own earned benefit even if it would be higher. That way, both individuals can take advantage of delayed retirement credits, which increase their earned benefits by 6% to 8% for each year in which they defer claiming between the ages of 66 and 70—and one gets some income from Social Security in the meantime." - WSJ Article

In plain English: The government just eliminated a strategy that would allow many couples to earn an additional $50K+ over their lifetimes.

After the President signs the bill into law, individuals will still be able to claim spousal or dependent benefits, but not if the spouse they are claiming them on has suspended his or her own benefits. There are still other strategies for maximizing Social Security income, but this will deal a blow to some families' retirement plans.  

If you would like to discuss Social Security in more detail please feel free to reach out to us and we are happy to walk with you through the process and work with you on your specific situation.