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A Retirement Planning Strategy Goes Away

With little fanfare, Congress has put an end to a valuable Social Security planning technique for married couples.

President Obama has now signed the Bipartisan Budget Act of 2015. As the law’s name suggests, it is mainly a federal budget deal, but it also included some major changes to Social Security. The update with arguably the largest impact is the termination of the “file and suspend” strategy, which had gained popularity with many married couples for retirement planning purposes.

It is common knowledge that waiting until age 70 to collect Social Security benefits will lead to higher monthly payouts than claiming benefits immediately upon turning 62. The file and suspend tactic allowed married couples to effectively have their cake and eat it too.

Say two spouses had become eligible for Social Security, with the higher earner having reached full retirement age (FRA). With file and suspend, the higher-earning spouse would file, but “suspend” his or her benefits – that is, stop drawing benefits in order to continue accruing deferral credits. Meanwhile, the lower earner would file and begin collecting spousal benefits for up to 50 percent of the higher earner’s benefit amount, less any early election reduction if applicable, as opposed to collecting the smaller net benefit to which the spouse would be entitled on his or her own record. At age 70, the higher earner would reactivate his or her benefits, since she or he would no longer benefit from delaying.

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