Social Secuirty Benefit

Social Security Changes: Is the "File and Suspend" Strategy For Me

Social Secuirty Benefit

Understanding the ever-changing landscape of our government’s Social Security system has grown more complex over time.  Whether it is a question as simple (on the surface at least) as when to file for Social Security, or something much more complex as to trying to anticipate cost of living adjustments to future monthly benefits; Americans can be certain of one thing: the high level of uncertainty that each retired or near retired individual faces.  This is something that is actually quite disturbing given many of the facts about Social Security.  Per the Social Security Administration, nine out of ten individuals age 65 or older receive Social Security benefits. In addition, Social Security represents an astounding 39% of income for the elderly.  Finally, among Social Security beneficiaries, 53% of married couples and 74% of unmarried individuals receive 50% or more of their income from Social Security.  In this article, we will discuss the “file and suspend” strategy, a strategy that is being voided by the government for everyone on April 29, 2016.

When the Budget Bipartisan Act of 2015 was finalized and agreed upon, there were important changes to Social Security that would go into effect in 2016.  One of the most notable advantages that the government is revoking is the ability to file and suspend your Social Security.  The file and suspend strategy can be used when one of the two spouses reach full retirement age.  When this occurs, the spouse that reaches full retirement age (age 66), files for Social Security, and then suspends their benefits immediately.  Following the file and suspension, the other spouse can claim spousal benefits while they defer their own benefit until age 70, which increases the value of their benefit by 8% annually.  This strategy is beneficial for couples when the spousal support receiver has a benefit that is less than half of the file and suspending spouse’s benefit. Therefore, qualifying for and benefitting from file and suspend are not one in the same. 

An example of a couple who may benefit from the file and suspend strategy would be when spouse #1 (Nancy) spends an entire career working a high paying job and spouse #2 (Joe) does not work or works very minimally for whatever reason (raising children, caretaker for parent, volunteer work, etc).  What an IFA Wealth Advisor can do for Nancy and Joe is input both individual’s date of birth and past covered earnings (Nancy having earnings with an upward trajectory throughout her earning career while Joe having sporadic earnings, even some years earning $0) into the above mentioned simulator.  Following this, more subjective points are added into the program, specifically life expectancy and nominal rate of return.  Last, the Wealth Advisor will execute a “what-if” scenario for each person.  Our Wealth Advisors will ask the client what age they currently want to file for retirement, spousal, and widower’s benefits so the information can be added into the simulator.  When all of these inputs have been completed, the simulation is completed comparing the “what if” results with the maximized results for both Joe and Nancy.  The results are below:



Above, you can see a distinct difference between the “what-if” strategy’s benefit amount and the maximized strategy’s benefit amount.  Executing the maximized strategy which includes filing and suspending would allow the couple to get more value from their Social Security given a higher life expectancy. The maximized strategy of Nancy filing and suspending benefits at age 66, Joe filing for spousal benefits at age 66, and then both filing for retirement benefits at age 70 will benefit the client more than the “what-if” strategy of both individuals simply filing for retirement at full retirement age (66).

If a couple not only qualifies, but benefits as well; the couple will need to act fast.  People who qualify will have until April 29, 2016 to both file and suspend, and then take spousal benefits.  Anyone who requests to suspend retirement benefits after April 29, 2016 will be unable to collect excess spousal benefits while their retirement is suspended.  IFA has an advisor license that can be used for our clients, and if you are an IFA client, we will be happy to assist you in getting a report.  Please reach out to your IFA Wealth Advisor or give us a call at 888-643-3133.

An example of a couple who may benefit from the file and suspend strategy would be when spouse #1 (Nancy) spends an entire career working a high paying job and spouse #2 (Joe) does not work or works very minimally for whatever reason (raising children, caretaker for parent, volunteer work, etc).  What an IFA Wealth Advisor can do for Nancy and Joe is input both individual’s date of birth and past covered earnings (Nancy having earnings with an upward trajectory throughout her earning career while Joe having sporadic earnings, even some years earning $0) into the above mentioned simulator.  Following this, more subjective points are added into the program, specifically life expectancy and nominal rate of return.  Last, the Wealth Advisor will execute a “what-if” scenario for each person.  Our Wealth Advisors will ask the client what age they currently want to file for retirement, spousal, and widower’s benefits so the information can be added into the simulator.  When all of these inputs have been completed, the simulation is completed comparing the “what if” results with the maximized results for both Joe and Nancy.  The results are below:

 

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Above, you can see a distinct difference between the “what-if” strategy’s benefit amount and the maximized strategy’s benefit amount.  Executing the maximized strategy which includes filing and suspending would allow the couple to get more value from their social security given a higher life expectancy. The maximized strategy of Nancy filing and suspending benefits at age 66, Joe filing for spousal benefits at age 66, and then both filing for retirement benefits at age 70 will benefit the client more than the “what-if” strategy of both individuals simply filing for retirement at full retirement age (66).

 

If a couple not only qualifies, but benefits as well; the couple will need to act fast.  People who qualify will have until April 29, 2016 to both file and suspend, and then take spousal benefits.  Anyone who requests to suspend retirement benefits after April 29, 2016 will be unable to collect excess spousal benefits while their retirement is suspended.  IFA has an advisor license that can be used for our clients, and if you are an IFA client, we will be happy to assist you in getting a report.  Please reach out to your IFA Wealth Advisor or give us a call at 888-643-3133.