Social Security Planning Strategies Eliminated

The “File and Suspend” and “Restricted Application” Social Security planning strategies are being eliminated thanks to the budget agreement passed by Congress, and signed into law by the President. These changes to Social Security go into effect as of April 30, 2016. Although this doesn’t affect the majority of Americans, it is a current concern for those that were planning to use these strategies in their retirement years.

File and Suspend

The File and Suspend method is a strategy used to optimize social security benefits. The spouse who has historically had more income would file an application for social security at the age of 66, then immediately suspend their benefits up to the age of 70. The spouse would then file for spousal benefits through social security, to be received immediately. The taxpayer’s suspended benefit would then grow by 8% a year, while still receiving a small benefit in form of spousal benefits as well. The change to this method is that the spousal benefits will be suspended if the taxpayer has suspended social security benefits. However, anyone who uses this strategy before April 30, 2016, will not be affected, spousal benefits will still be paid.

Savings Opportunity: This is the last opportunity for couples to employ this strategy. If you or your spouse are older than 66 you will be able to file and suspend social security benefits, and will receive spousal benefits going forward.

Restricted Spousal Application

Restricted Spousal Application is when a taxpayer is at least age 66 and has not filed for their own benefits, but has filed for spousal benefits. This allows them to receive some social security benefits while their social security benefits grow until they are required to take out their own benefits at the age of 70. However, Congress is eliminating the ability to suspend your own benefits, while taking spousal benefits. If you delay your own benefits, you will not be able to take spousal benefits.

Savings Opportunity: Taxpayers born before 1954 still have the opportunity to take advantage of this strategy before April 30, 2016. Therefore, if your spouse has filed for benefits, you can file for spousal benefits, while still allowing your social security benefits to grow until the age of 70.

In order to take advantage of the possible savings, taxpayers need to act quickly, and use these strategies before the new provisions take effect on April 30, 2016. If you are not currently using these strategies and would like more information please consult with an Anders tax advisor.