Social Security: This strategy to maximize benefits may soon disappear
When it comes to Social Security, most of us hope to get the most we possibly can from our benefits.
Methods for making that happen, however, are a source of heated controversy. 鈥淔ile and suspend鈥� is one advanced claiming strategy that can help聽聽savers at all income levels, especially women, maximize their benefits. But it has its foes and might not be an option for much longer.
The new budget deal pending approval in the Senate would disallow 鈥渇ile and suspend鈥� beginning in early 2016. That could mean as much as聽聽in lifetime Social Security benefits for some recipients, according to an article by Laurence Kotlikoff, a professor of economics at Boston University and staunch proponent of 鈥渇ile and suspend.鈥�
What is 鈥渇ile and suspend鈥�?
鈥淔ile and suspend鈥� allows one spouse to file for Social Security benefits and then immediately suspend those benefits. By doing so, this spouse preserves his or her ability to receive delayed-retirement credits while also letting the other spouse claim a spousal benefit.
How does this work? Let鈥檚 walk through an example.
Tom and Beverly were some of my first Social Security consulting clients. They were both 66 years old and ready to retire. Tom鈥檚 full-retirement-age benefit was $2,200 and Beverly鈥檚 was $900.
As we discussed their options, I mentioned to Tom that he could get delayed-retirement credits of 8% per year until age 70. He was captivated. All he had to do was wait four years to draw benefits and his would increase by at least $704 per month.
Once Tom filed for Social Security, Beverly was entitled to a spousal benefit of $1,100 per month, considerably more than the $900 available under her own work record. But for her to receive that extra $200, Tom would have to file first.
Enter the 鈥渇ile and suspend鈥� strategy. With it, Tom could earn the delayed-retirement credits聽and聽allow Beverly to file for the full spousal benefit.
Under fire
It might sound simple, but not everyone thinks seniors should have access to 鈥渇ile and suspend.鈥�
In a MarketWatch article titled 鈥淟et鈥檚 Close Down Social Security Gaming,鈥� Alicia Munnell, director of the Center for Retirement Research at Boston College, argued that advanced claiming strategies 鈥� including 鈥渇ile and suspend鈥� 鈥� were聽.
The Obama administration has also described some of these filing strategies as 鈥渕anipulative鈥� and 鈥渁ggressive,鈥� arguing that high-income seniors use them to gain an unfair advantage.
鈥淔ile and suspend鈥� has its advocates, including Kotlikoff, who believe that eliminating the strategy would cause more Americans to take benefits too early, lowering their Social Security payouts for life. Still, Congress has it on the chopping block. The budget deal that eliminates 鈥渇ile and suspend鈥� has already passed the House of Representatives and is expected to pass the Senate soon.
鈥楩ile and suspend鈥� for the middle class
The wealthy aren鈥檛 the only ones who can use 鈥渇ile and suspend.鈥� It can come in handy for middle class folks, too. Most workers don鈥檛 have a pension, and many are finding out that their聽聽don鈥檛 provide the income stream they鈥檇 hoped for.
That鈥檚 especially true for women. According to the Social Security Administration, single women over 65 depend on Social Security for聽over half聽of their income.聽Men in the same group only depend on Social Security for a little over a third of their income.
For those who rely on Social Security, using strategies such as 鈥渇ile and suspend鈥� can mean the difference between having safe housing and reliable transportation and having to go without.
Increasing your current and survivor Social Security benefits should be top considerations when you make your claiming decisions. And 鈥渇ile and suspend鈥� can help you maximize these benefits, at least for now.
