Two ways to optimize Social Security benefits, known as “file and suspend” and “restricted application,” were eliminated for most pre-retirees by the Bipartisan Budget Act of 2015.
In the year 2000, Congress made changes to Social Security that allowed Americans who had already started their Social Security benefits to stop their payments, and continue to earn delayed retirement credits. Since monthly benefits are greatest if claimants wait to take them at age 70, these two strategies allowed married couples to receive some Social Security income while earning delayed retirement credits to maximize their payments.
In a 2009 report, the Center for Retirement Research estimated that the restricted application method would cost the Social Security Administration as much as $9.5 billion a year if all eligible individuals claimed it. The center estimated that the use of the file-and-suspend strategy would have had a more modest impact.
This technique allows a married individual to file for his or her Social Security benefits at full retirement age, and then immediately suspend the payments.
Filing for benefits permits the individual’s spouse to receive Social Security based on the filer’s higher benefit. Meanwhile, the individual who suspends Social Security checks would see his or her future benefits grow by eight percent a year until they reach the maximum benefit at age 70.
Under the current law, only those born on or before May 1, 1950 are able to take advantage of this strategy, and they must file by April 29, 2016.
This method allows married individuals who have reached their full retirement age to collect a spousal benefit. Their own benefit continues to grow until age 70, at which point they switch on their own payments and off the spousal. Anyone born on or before January 1, 1954 is eligible to use this technique under the new rules.
If you will be age 66 on or before May 1 of this year, you may want to consider the file and suspend strategy, bearing in mind that the deadline to file with Social Security is April 29. If you turned 62 on or before January 1, 2016, you will be able to file a restricted application once you are at full retirement age, so there may not be any action for you to take now.
While you can start receiving checks at age 62 with permanently reduced benefits, you can also wait until age 70, or any age in between. Delaying payments until age 70 (which only 2.2% of claimants do) results in monthly checks that are 76% larger than payments begun at age 62.
For more information on Social Security benefits, please check out our video series.