Social Security Sneak Attack

Mack Courter |

A couple months ago, I wrote about what it will take to make Social Security solvent.  I also predicted that Congress wouldn’t do anything until the 11th hour to fix Social Security.

I was wrong, at least to a certain extent.   

In a move that took just about everyone by surprise, our esteemed elected officials just closed the door on some creative planning strategies with Social Security.  

As part of the budget deal to raise the debt limit, Congress eliminated some loopholes that potentially allow retirees to increase their Social Security benefits by tens of thousands of dollars over their lifetimes.  They did this without any prior announcements or debates. 

Most shockingly, it was also bipartisan undertaking.  It was passed by the Republican House on Wednesday, the Democratic Senate on Friday (at 3 AM in fact), and signed into law by President Obama on Monday.  And here we thought that politicians couldn’t agree on anything. 

The two techniques that are now outlawed in all but a few exceptions are called:

  1.      1.  File and Suspend and

     2.  File a Restricted Claim


File and Suspend allows a higher-earning spouse to file for their social security benefits, but immediately suspend them.  They suspend the benefits so that they will get a bigger check—up to 32% greater than their normal full retirement age benefit.  However by filing, it allows a lower-earning spouse and/or a dependent to collect spousal or dependent benefits. 

Filing a Restricted Claim allows one spouse to file for a Spousal benefit only, allowing their own retirement benefit to grow by 8% per year past full retirement age.       

I must admit I have some mixed feelings on the subject.  Because changes must be made to Social Security to keep it viable, closing these loopholes make sense.  However, it scares me that legislators would do this in a sneak attack.  As a planner, I spend so much time crafting financial plans to help my clients retire.  These plans are based on the assumption that laws that have been on the books for decades will continue.  If politicians can make radical changes to Social Security in three days, what else can they do?

But, back to how this affects you right now.  For most folks, these changes won’t matter.  Only a small percentage of people even wait until full retirement age to collect Social Security benefits. 

There are two groups of people who can still use these loopholes, but you must act now. 

1.  If you are 66 now, or will turn 66 before May 1, 2016, you can still file and suspend. 

2.  If you turn 62 by December 31, 2015, you can still file for spousal benefits only by your age 66.  This assumes your spouse or partner has filed and suspended or is collecting benefits.                

If you find yourself in this unique situation, and want to know if it makes sense for you, just let me know, and we can figure it out.