Budget Bill Ends File and Suspend Strategies for SS Benefits

Is AARP lobbying against HR 831?

This sounds very flaky, on the edge of fraud! They were just gaming the system and draining money out of Social Security. P.S. I'm on Social Security.

I don't think Social Security was ever suppose to have loopholes such as file and suspend. If you want to save social security ask yourself, WHY IS THIS FAIR: You and spouse make $100,000 per year and every dollar is subject to social security taxes. Meanwhile the officers of the company you work for make $100,00's to $ millions every year but ONLY $118,500 is subject to social security taxes. The rest is social security tax-free. The rich just keep on getting richer. Make everyone pay social security taxes on what they earn and balance the trust fund forever.

I worked for SSA for 39 years. Use of this "strategy" is an abuse of the intent in the Social Security Act. It also is obviously to the advantage of seniors financially able to put off collecting their highest benefit. Most lower income people can't afford to use it. Not that many years ago, financial advisers were telling people to accept their benefits and then later withdraw, pay back the money received, and re-file, collecting a higher benefit. It was emphasized that they had "free" use of the earlier benefits received as no interest was charged on the money paid back. Congress acted to stop this by limiting withdrawals to 6 months after the claim is filed. That's when the emphasis switched to the "strategy" of filing on a spouse's account at full retirement age in order to accumulate delayed retirement credits on one's own account. DRCs were meant to reward people who worked until age 70 and continued paying FICA taxes. (Congress considered eliminating DRCs in 2000 when the earnings restrictions ended at full retirement age.) People who think they're getting what they "deserve" by using this "strategy" are using a loophole which drains the social security trust funds even faster. I hope Congress closes this loophole and that AARP supports this legislation if the organization truly care about the long-term health of SSA.

I agree with you, Greg. I have heard of this strategy and believe it to be a loophole that should be closed.

I agree....loophole that needs to be gone.

I used the file and suspend as I was unemployed at 62 and needed the income. 3 months post turning 62, I was fortunate to find great employment and suspended SS as I didn't want the negative tax implications of working and drawing SS. Thus, this option needs to be kept for those like me who want to wait for SS.

Using this "close the loop hole", idea. Would you all be for removing other loop holes, like being able to use your home loan interest as a deduction, for example? Careful what you wish for!

I am in agreement with Greg and Bonnie. I am a single woman and I would not have the option to file and suspend against spousal benefits anyway. I am a divorcee and could claim half of my ex-husbands benefit, we were married 15 years. I feel that too many people are taking advantage of the now legal loophole --it should be discontinued. There are other things about SS that could also change....too many millionaires use SS to pay Golf fees while others who worked hard --only at low paying jobs need every dime to makes ends meet each month. So why should well off people collect SS.?

Why is AARP not working to get the law changed so that everyone pays their fair share in SS taxes? Why do the ultra rich only pay up to $118, 500 in taxes? This is just wrong and this is why the system is in trouble. I am a teacher and will not be able to collect my SS tho I have enough credits earned, because I pay into my state retirement system. It is a flawed system that allows certain people (RailRoad) to collect both. AARP get going and get the law changed - Bernie is right on this fact.

"Well off" people collect SS because they paid in just like everyone else. I do agree that there should not be an upper income limit to paying the taxes, which is peanuts anyway to those making more than $118,500. Even though I'm only a couple of years away from being able to exploit the file and suspend loophole, I also agree that it should be eliminated immediately in order to stabilize the system. I am thankful that my 23-year-old son working in law enforcement doesn't participate in SS because it will not be there when it would be time for him to draw benefits. There are too many people drawing benefits from SS that have NEVER paid a dime into the system. Close those loopholes as well.

Agree with Marilyn. I've paid in the maximum tax for almost my entire career (although my benefits are going to be capped). If I was just paying taxes but had to forfeit my benefit, it would be confiscatory. Dianne - it's my understanding that tax stops after $118,500 because of essentilly the same constitutional issue. Benefits would have to go up to somehow correspond with the taxes that were paid in to avoid being an illegal confiscatory tax, and the actuarial tables and anticipated increase to the fund doesn't support that adjustment. I'm not a tax lawyer, so I don't know how the government defens the other tax bands over the years, but ths is always something they have to deal with. I suspect there are precedents and it's been tested in Court many times.

$118,500 is also not "ultra-rich" in this country anymore. If you are in an area of the country where the cost of living is very high, this could include some of the middle class such as firemen, police, physical therapists, nurse adminstrators, paralegals etc. Even if base salaries are lower, they may go over the limit due to overtime. Yes, it seems like a lot of money in other parts of the country, to people who raise their families and survive on a heck of lot less money, and to people who comparing this number to the salary ranges that most people earned in earlier decades. It's more than the national average by far. However, national average numbers include parts of the country where the cost of living is low, student households, people living on minimum wage, etc.. I'm always interested in reading how those numbers are calculated.

The AARP website has nothing about this so have no idea if they are pursuing a lobby or not.

Personally we (at 60 & 59) are looking forward to this perk and have planned our retirement on the fact we can wait. We will deplete all our savings until then but we can wait. We have moved around a lot and worked hard - the little bit it will bump up at 70 would make life a little easier when we get there - IF we get there. By all the obituaries in the newspaper, is it seriously causing that many problems?

I also have been looking forward to taking advantage of MY benefit by delaying full benefits till 70. Why is everyone so quick to give up our benefits that we've earned to supposedly save the system. Is it because this benefit doesn't apply to you so you consider it a loophole? Whats next? How soon will it be before they want to cut a benefit that your planning on. Will you call it a loophole then?
This is nonsense. The congress is clearly at fault for dipping into the plan for decades.
We have all worked long and hard for our money. Now is not the time to let congress chip away at it.

People earning more than $118,500 already pay the Medicare portion of the FICA tax on ALL of their earnings without getting any additional Medicare benefits. This could be done for the Social Security portion, too.

Dianne C, your last two sentences are wrong! Even if your work as a teacher was not covered by FICA taxes, you will still get a Social Security retirement benefit if you have 40 work credits. It just won't be computed as generously. That's because the built-in boost in the computation of benefits for lower income people wasn't meant to benefit people like you. Also, people do not get Social Security benefits if they have never paid into the system unless they are eligible as the spouse, widow(or), or child of a worker.

An sensible solution would be to increase the upper income limit on social security by a set percentage each year -- say 2 - 3 percent. Or tie it to the rate of inflation or the growth rate in overall income. Such an approach would go a long way in dealing with the potential funding problems associated with social security and would have the added benefit of dealing with the problem in moderate and clearly predictable fashion. If needed, other slow but predictable adjustments could be made to the retirement age. There are fairly easy solutions that exist. What is missing is the political will to implement them.

I am currently drawing my late husband's SS and will switch to my own when I turn 70 in a year a half. Is this considered to be "File and Suspend". Any input will be appreciated.

AARP supports the deal.
http://blog.aarp.org/2015/10/28/how-the-budget-deal-would-blunt-medicare-cost-increases-tweak-social-security/

Everything I have read today backs up the fact of Social Security being a supplement to our retirement savings. I don't think loopholes are what is draining Social Security. The Politicians are draining it. I imagine I will see the day there is no Social Security for any of us. My son is planning his retirement without it. Thanks everyone.

Jean H - it is true that teachers who receive a state pension in SOME states, will receive a small SS benefit if they worked the required quarters. This only occurs in 14 states - lucky us to have chosen the "wrong" states to teach in! I began teaching in NH and paid into SS for years, also worked summer jobs for years and paid into SS. I spent the rest of my career teaching in Maine and paid into the state pension system as well as working summer jobs. I recently filed for my SS benefits and will begin receiving a benefit just over 100.00 in a few months! Wow - not enough to even pay for the medicare deduction! They say my state pension falls under a Windfall provision! I can assure you that the paltry amount I collect from the state of Maine is NO windfall! My contributions to SS all of those years is somewhat worthless now isn't it? Once again - hard work does not pay after all! Should have stayed in NH - my colleagues across the border will collect both their state pension and SS! I guess "40 quarters" does not mean the same to all citizens in this country....

My wife and I are both 63 and had planned on doing file and suspend when we turn 66. I intend working until I'm 70. My health is good and am I'm in a field where I can do so. For 22 years we were raising our four children and I was serving as a pastor. My wife was a stay-at-home Mom. We didn't have the extra money to put into savings and our denomination didn't have a pension plan. Now our children are all grown. Currently we do not own a home but are renting and saving as much as we can, putting money into IRA's, stocks and savings. File and suspend would help us move closer to assuring we'll have enough to live on in our Golden Years 70-90. I don't consider it a loop hole and do not want to see it cancelled.

My husband is a retired RR employee. He is not able to collect both RR and Social Security. The law was changed many years ago.

Like the AARP I support this change. It rewarded folks (spouses) that put very little to nothing into the system.

(Not sure if this affects widowers), I'm very grateful for this loophole, which I didn't even know about till SS notiffied about this option.My husband retired at 63 due to many health issues, I was younger still working and planned to work longer, but his health turned worse and asked if I could retire earlier, I had that option never thinking
he would pass away a year or so after. I collected his SS, when I was able to and not mine even though
the amount was in close comparison. When I ws 66 SS let me know I could collect under my own SS with
more benefits the longer I waited till the full age of 70. If I didn't have these benefits it would
be a very drastic effect financially. So why should I be penalized for this sceniaro, and if I had gone back to work
I would've had to suspend my SS benefits. Most of us at this age have worked since we were very,very young and
have worked hard to have SS benefits, that we have put money into, to get us through this later time of our life.
by Veronica - Oct. 30, 2015

Personally I am against anything that penalizes spouses who did not work or spouses who worked and became disabled while working. What is next, less medical coverage for the spouse? I see they are doubling the medical premiums for working spouses!

Just found this article, which states that file and suspend does not affect survivor benefits (ie, filing for widow/widower benefits and potentially suspending taking SS on your own benefits until 66 or later): http://www.valuewalk.com/2015/10/social-security-reform/

Both spouse will take SS at full retirement age if this should pass.

Wondering if anyone has some guidance to this restricted/delayed filing question?
Both of us will be 66 in early 2017. I originally planned to file for SS in 2017 at full retirement age of 66, with wife then getting the 50% spousal benefit at same time. (She does not have her own work record of at least 40 quarters, so her benefits will only be through my work record.)
If she begins collecting the spousal benefit in 2017, can I still suspend my benefits to age 70 under these new proposed rules? I want her to have my larger deferred benefit available as my survivor, assuming I predecease her. Haven't found the answer anywhere, since everyone talks about the impact of 2 wage earner couples, vs my situation of non-working spouse.

EIBfan, I find information about non working spouses limited. My wife went to Social Security to get answers/suggestions as she only had working credits, not enough and no medicare credits. She stopped working ten years ago to care for her mother, WHICH IS UNPAID WORK. She will be returning to the work force as suggested by Social Security. She won't be able to retire and make it as a survivor. Cost of living is growing and advice from this site is to save every bit of her income to invest.

Joyce C. said: "I am currently drawing my late husband’s SS and will switch to my own when I turn 70 in a year a half. Is this considered to be “File and Suspend”. Any input will be appreciated."

I am not a lawyer or CPA, but I think you are collecting a survivors benefit, not file and suspend. From what little I know all you will be doing is dropping your husbands benefit and switching to your own because it is higher (if it is not higher then no reason to switch). It is probably best if you contact your local SS office and ask them.

This I don't understand maybe someone can explain it to me. I am on social security disability but I claim under my husbands since he passed away. I don't have enough credits so what does this mean for me?
I am disabled would this effect me in any way.

Thank You

Jackie, have you contacted your local SSA office and asked them? It sounds like you will forever be on the program you are now on since you don't have enough credits of your own, but it is best to contact the SSA for advice.

Jackie, good advice from Art. Sometimes an incorrect answer can be given. I would also approach Prof. Plumb who is excellent a=on SS matters. He is at either for a phone in question or you can email him.

Speaking of loopholes, why does Washington continue to use funds that go into the SS Trust Fund for other purposes?
Who will fix this? Seems to me this would be better than worrying about 100,000 people using file and suspend. Heck, we have more than 100,000 new illegals using SS and Medicare each year. Yes, I use file and suspend, but I was obeying the law.

Even though I would like to have taken advantage of this "loophole", I guess I support the closing of it. But it's so interesting that the ONE loophole the government chooses to close is the one that would help the lower and middle income people the most. What about all the loopholes ( and there are tons of them) that are used by the wealthy and the self employed to avoid paying their fair share of taxes? How about closing those loopholes to help make our country more financially solvent? Or are those loopholes not closed because politicians receive sizeable "donations" from the wealthy? Anyway you slice it, the rich will get richer and the poor will get poorer...that's America.

When does the law take effect?

thomas m sez: "Speaking of loopholes, why does Washington continue to use funds that go into the SS Trust Fund for other purposes?"
If I remember correctly, what congress is doing is borrowing from the trust fund, putting an IOU into the spot where the money used to be. I don't think the IOU pays interest.
Then each year Congress has to allocate money in the budget to pay SS recipients, and whine this payback on the loan they took from the trust fund is instead an "entitlement" that needs to be curbed or it will bankrupt the country.
So then next time you hear a Congress member call SS an entitlement, you know he is a crook that just doesn't want to pay back what they borrowed.
Someone correct me if I have this wrong.

Does anyone know what happens to those of us who have already started the file and suspend process? I have not seen this issue addressed. I am a divorced individual, not currently married or re-married.

Lulu:
"While the new limits to Restricted Application will not apply to anyone who is already age 62 or older in 2015, the new crackdown will kick in 6 months from now... grandfathering anyone currently going through file-and-suspend but limiting anyone who tries to suspend benefits thereafter." After that you can still suspend benefits but no one will be able receive benefits until the suspension is lifted.

This is from https://www.kitces.com/blog/congress-ends-file-and-suspend-restricted-application-and-other-voluntary-suspension-social-security-strategies/ , which has more on the topic.

I have worked my entire life some of it as a single mother putting kids through college. To do this I had to work two or sometimes 3 jobs while their father was in a comatose state with a rare neurological disease.. So my income was high but we barely survived. Of course my kids didn't get financial aid due to my working so much, even merit scholarships were reduced based on my earnings. All this while my house was falling apart without any extra money to keep things up. I believe that I should get every penny that I put into it and there should be no caps for hard working people. If I chose to not work at the time my kids would have been going to school for free and so when it came time for Social Security if I didn't qualify for much I would be available for Medicaid I'm sure so all the hard workers would be paying for me and my kids education. I just couldn't see it. So now I'm living in a high tax state, CT, and can't wait to get out. I'm 61 and was hoping to use the file and suspend with my new husband who is 60 when we reach retirement age. The way I see it is that one of us will be getting only half as much as we could be getting since our incomes are similar with the hopes that we live long enough to enjoy the money when we are older. In our case the government should be thrilled that one of us would file and suspend and put their chips on the fact that at least one of us will not make the break even point! So in the end it is us hard working people that ultimately will pick up the tab as usual and the government is trying to find ways to give us less. So we will both be collecting full benefits at 66 I'm sure because it appears that otherwise it will be in the "house's" favor. By the way we are moving to Nevada and are counting the days!!!

Karen, you say you are planning to work till 66 and you are planning to move to Nevada. Are you staying in CT till that time or are you both moving soon. If so, do you both plan to find new jobs out there? What drew your interest to Nevada? I also live in CT and the high taxes. I am 62 and plan to start collecting SS in February next year. Hub started collecting SS in May of this year and he's 63. He also has a small pension. We cobble together some other income from annuities and one inherited IRA. We are doing pretty good so far. Did you consider retiring before age 66? Sounds like you have struggled and worked very hard during your lifetime.

The government has our hands tied too. I would like to work part time but we have to keep our income lower to get the Affordable Care Act subsidy which for us is $1,011 a month. So that would be $12,132 a year we'd lose if we go over the income limit. So makes no sense for me to work! The government gives you no incentive to work, they penalize you instead! If I did work, the first $12,000 would go to health insurance on top of the $6,000 we are already paying!

Karen,
I might be misunderstanding your comment "One of us will only be getting half as much". If both of you have similiar lifetime earnings then you and your husband should each file for SS under your own earnings history rather than filing for spousal benefits. Social Security would advise you to do that as well whether you go to the SS office or apply on line.

Since my husband is a year younger the plan was for me to file and suspend at 66 and keep working at least part time until 70 then collect my own benefit. He would start collecting the spousal benefit at 66 which would have been half of my amount and also work until 70 then the two of us will be at our maximum. One of us really has to wait until 70 because he would need a higher death benefit than me since I am eligible for my late husband's pension but it won't transfer to him. We have family in the northern Las Vegas area that have already relocated and retired there and we purchased a home there last year by borrowing the down payment from my 403B and now have a property manager and so far good tenant. I believe it was a wise move since property values are going up like crazy there and in one year our home has increased by 11%! The original plan was to stay here in CT until we get on medicare. Now if we were to semi retire here and lose my health insurance since we have rental income I once again I shot myself in the foot with the government because the rental income is counted as income - they use a formula called modified adjusted gross income not adjusted gross income so we don't qualify for any subsidies even if we weren't working until we actually move in and not collect renal income. Nevada does not have state income tax and Obamacare out there is much more affordable than in CT by several hundred dollars a month. The house out there is smaller but still three bedrooms and a three car garage and the taxes are $6,000. a year cheaper! Heat is hardly ever used so say goodbye to that killer oil bill and yes, it does get hot in the summer but still the electric is not too bad considering you're not using it to fire up a furnace most of the year. My husband has been doing leaves now for days on end and we can't take this anymore. Last year part of our roof was damaged and I am still waiting for the insurance company to finalize the damages since last March! So the plan is to sell this place in the spring hopefully and get jobs out there. My husband is in the construction trade and I am an RN and at this point I don't think we will find it hard to find something to make enough money to pay our bills out there. Here we would be working forever full time or more! I would like to find some type of helpful employment working in a senior center or something trying the help people navigate their lives when I retire but here, forget it! I would have to stay in a rat race job! Most of my friends are moving to the Carolinas or Florida but the dry climate suits me better. Be careful what you do - it's what you don't know that you should know that gets you! Louise, run the numbers on healthcare costs in Nevada. Oh, and one of the biggest bonuses out there yet! No mosquitoes! It's a college city and they are building like crazy, a new ice rink and trying to get an NHL team which excites my husband., We are far enough from the tourists on the strip but close enough to go in to a show, etc. I would not both collect SS before 66 because then one of you will be stuck with a smaller death benefit for the rest of your life!

Trying to plan ahead for that new Medicare cost - What is modified adjusted gross income...how is that different from adjusted gross income?

Sandy, I am not an accountant but basically it reads that a lot of the items that you are allowed to deduct when filing your taxes to get to your adjusted gross income are not allowed when you calculate your modified adjusted gross income which will inevitably bring your income higher and eliminate your eligibility for subsidies under the affordable care act. Lots of articles out there to read to explain it since I think most of us have never heard of it. Retirement income, rental income, etc.

SandyZ, Modified adjusted income is only a consideration when applying for Obamacare, not Medicare. Another factor in the adjusted method is you have to account for all your social security income, not just what the federal tax uses.

Thank you Karen and Bill. I was mainly asking about modified gross income as it pertains to Medicare. All very complex, but more and more, it appears that the federal government is not too kind to seniors when it comes to being less grabby!

I totally agree with Mark Koch Oct. 29, 2015. Our financial advisor advised my husband and I to do the "file and suspend" when the time comes which will be in 3 years. We counted on that as we are not very financially stable enough for retirement and we will have to continue working in some capacity during retirement. We have worked long and hard and now what could have helped us is being taken away. Way to go government. For the people??? Bah ha ha

It appear F&S can only be used effectively if the couple is close in age. If the older spouse files and suspends at Full Retirement Age (66), when can the second spouse collect? If I read it right the second spouse cannot collect until they hit 'retirement age'. What is 'retirement age', 62 or would it be the FRA of 66? What happens if the younger spouse is 4 years younger than the older? How does that math work?
I have not asked this question before as my wife is 7 years younger (I robbed the cradle) and I figure by the time she could possibly collect anything I would be over 70 anyways. But it would be nice to know just as an academic exercise... I am curious.

If I've read the new rules correctly I think my husband and I will still be able to use file and suspend/restricted application. My husband turns 68 in December and I turned 63 this past June. We both still work. My husband plans to retire when he turns 70 in two years and I'll retire six months later at 66. My husband hasn't applied for Social Security yet, but based on the new rules I think he now has to before April 2016 and then suspend his benefits. If he does that I believe I will be able to file a restricted application when I retire at 66 and collect on his benefit while mine continues to grow to 70. Can anyone confirm that?

Also, does anyone know how to file and suspend? I know you can apply for Social Security benefits online but the only thing I could find about suspending benefits was a paper form you fill out and mail in. I'm a little wary about doing that. Would it be better to go to a Social Security office, apply in person, and suspend at the same time?

Ann, I would definitely advise you & hubby go into a Soc Sec office to do your file & suspend, vs trying to do it online. I just applied for Medicare recently online, but ended up going into the Soc Sec office anyway to complete the process for my wife, since she did not have enough work credits to qualify for Medicare on her own record. The SS representative transferred my online application to herself at the local office, and she told us that also speeds up the process, since they can verify your identity on the spot, vs their longer online verification steps.
Good Luck, and I believe you likely will be able to do a F&S strategy as you've outlined, but I am not an expert, just very interested in reading everything I can about it. (Sadly for me, it seems I'll miss out on implementing F&S, since I am too young by about 9 months for the new cutoff dates!)

Ann, we asked Social Security expert and consultant Curt Czarnowski, who we recently interviewed for an article on this topic about your question. Here is what he said:
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Because she will be at least age 62 by the end of this year, she will still be able to file a restricted application and collect a spousal benefit off of her husband. And, as long as he files and suspends before next April 30th, she will be able to receive the spousal benefit even if he is not actually collecting anything because he has asked to have his payments suspended.

Here's the thing, though. He will have reached age 70 and started collecting when she hits her FRA, so his payments won't be suspended at the time she files the restricted application. Thus, he really doesn't have to worry about filing and suspending before next April 30th in order for her to collect spousal benefits. However, filing and suspending before the deadline might still be advisable in case a situation arises where he would like to have any suspended benefits repaid to him in a lump sum. If he waits beyond April 29th to file and suspend, this will no longer be an option.

In answer to the second part of her question, you "file and suspend" via the remarks section of the online application. Once you have completed the application (using the biggest, boldest font possible) you simply add a sentence in the remarks section to the effect: "I wish to have my monthly benefit payments suspended in order to earn Delayed Retirement Credits." That's all there is to it.
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PS - Look for our new File and Suspend article on the Blog

Jennifer you commented "why should well off people get to collect SS". Well, the answer is they have been WORKING their whole life and paying into SS. Besides paying SS they also pay federal income taxes, which about 50% of the population do not pay. If it were not for the "well off people" this country would not have SS and all the entitlements that are given out. Think about this..........
ginny

Agreed Ginny! If you have worked and paid in you deserve SS as much as the next person. Where would the cut off point be? If you have $30k, $40k, $50k, $100k, $500k in savings? What is 'well off' and who decides what is well off? If you are well off early in life would you have the option to not pay into SS? If you did pay in and then became 'well off' would you get the money back from SS if you stopped paying in?

Who knows what 'well off' people do with their SS money. Maybe they donate it to charity, maybe they save it for grand kids for college or help their children buy a house. If they choose to use it as play money for golf, dinners on the town or jewelry who's business is it? If we scrutinized every thing each of us bought with SS money, maybe none of use would be considered 'worthy' to receive it! I for one, feel 'well off' that I can pay my bills and have food on the table and have a little fun in between. Not all of us have been handed the same slate in life. Some of us are poor, some are comfortable, some are rich.

My husband is 9 years older than I so I intended on taking 35% of his when I turn 62 so that we could focus on other areas of life and then take my full at age 66. That 35% was going to be allocated to paying health insurance. I am just shy 13 months from the date of birth cutoff date. Now I have to re-plan my retirement. Due to the fact that SS has been gutted during Bush years (and probably other times as well), I tend to see this less as a loophole, than a take away.

How lifting the cap on social security?

Yo left out "about". How about lifting the cap on social security?

Kathy,
The Social Security fund had been gutted l o n g before the Bush years. How long ago, i don't know. I do we had a legislator in our area who wanted to put a stop to it. Unfortunately, he died before he could get an act moving into Congress, and this was way before Bush. FYI

Kathy, ella,
Answers to you questions and more can be found at https://www.ssa.gov/history/InternetMyths2.html.

Debra,
While we are at it, how about lifting the cap on SS benefits too? Would only seem fair...

Thanks, Art! I always appreciate your contributions.