For over a decade it was sound and perfectly legal advice for financial advisors and elder law practitioners to advise their married clients to file and suspend their social security benefits, thereby maximizing their financial returns. The basic advice was to advise a married couple to have the spouse who earned more through his/her lifetime to file for social security benefits at the full retirement age. After the higher earning spouse filed, the lower earning spouse would automatically be eligible for spousal benefits and would therefore file for spousal benefits. Once the lower earning spouse started to receive benefits, he/she would get a higher monthly benefit amount as the lower earning spouse would piggyback on the higher earnings of their spouse.
At that time, the higher earning spouse would suspend their benefits and work, thereby increasing their social security benefits even more, so that way when they hit the maximum benefit age now set at 70 they would have a higher monthly benefit amount. When the higher earning spouse hit the maximum benefit age, they would have maxed out their social security earnings and have already benefitted from a spouse who collected social security benefits in the meantime. It all comes down to dollars and cents. Someone has to crunch the numbers to determine if it made sense for the couple to do it, although for the majority of couples it did make sense.
The question also had to be asked, when was the optimum time? Again, someone had to crunch the numbers to find the sweet spot. There was even a second strategy for those whom it did not make sense to do so. The second approach was for both spouses to file a “restricted application”, whereby each spouse would only receive their spousal benefits. This let them increase their own earnings, so that way when they reach seventy, they have maximized their social security benefits. In either event, the couple would be able to benefit from an additional several thousands of dollars.
SIX MONTH PHASE OUT
On October 30, 2015 President Obama signed the spending bill which eliminated the loophole still allows for the file and suspend practice to continue, albeit for only a short period of time. If you already receive it at the time of the phase out, you will continue to receive it. The law only allows for a short six month phase out, which means that by April 29, 2016, couple will no longer be allowed to collect under this method of file and suspend. In addition, those who are 62 years of age or older on December 31, 2015 can file a restricted application for spousal benefits for the next four years. It is estimated that this practice cost the Social Security trust fund more than nine billion dollars a year. On an individual level, most couples netted approximately $60,000 in additional benefits. It would take the couple until they reached the age of approximately 80 years old until they could make up that difference. While individual circumstances change, under most scenarios it is best to wait to file for benefits.
If you can still file under the old rules, it is best to speak with an experienced elder law and estate planning attorney to determine an overall larger strategy. But the time to act is now, any delay may be to your prejudice.