A major Social Security loophole is closing at the end of this month.
April 29 is the last day to take advantage of a strategy that allowed millions of people to put their Social Security benefits on hold while still claiming benefits from a spouse’s plan. The tactic,known as "file-and-suspend," was disallowed under the Bipartisan Budget Act of 2015, which was passed in October.
“We will no longer permit suspension of retroactive benefits in situations where you apply for benefits and we have not yet made a determination regarding your entitlement,” a statement on the Social Security website reads. “If you voluntarily suspend your retirement benefit and you have others who receive benefits on your record, they will not be able to receive benefits for the same period that your benefits are suspended.”
File-and-suspend allows people who are eligible for both the spousal and worker’s benefits from Social Security, starting at age 62, to file for both, but defer taking one of those benefits until a later date. The other benefit for which they were eligible would still go into effect. Under this system, spouses and children were entitled to collect from Social Security even while their loved one’s benefits were suspended.
A variety of scenarios made the file and suspend strategy attractive, particularly for workers who expected to live longer than their spouse, or who wanted to keep working (the latest a retiree can wait to claim Social Security is age 70. The tactic also allows people to receive the most money possible from Social Security: while a Social Security payment is suspended, its future payout can increase by as much as 8 percent a year.
There are a few cases that file-and-suspend will not affect. Divorced couples for example, will still be entitled to collect spousal benefits from their exes.
By ending file-and-suspend, Social Security is looking to close a loophole. Under the new rules the essential structure of Social Security and the key benefits it provides will not change.
If retirees choose to file before April 29th, they will still be able to take advantage of file-and-suspend. Before that date, filers will also have the option to claim either some or all of their previously suspended payments retroactively, in a lump sum.
Filing for and then suspending benefits is different from choosing not to contact Social Security about collecting benefits at all. By choosing to delay filing for benefits until after full retirement age -- age 66, for those born in 1943 -- people can expect an increase in the amount of benefits they receive.
There’s also a difference between file-and-suspend and restricted applications. Restricted applications are the form that retirees fill out in order to claim their own spousal benefit, while file-and-suspend was used to gain benefits while simultaneously delaying collecting one's own retirement benefits. Those born in 1953 and earlier will still be able to fill out the restricted application form once they reach full retirement age.