By Gail MarksJarvis
Originally posted in Chicago Tribune, March 2016
If you are married, and you or your spouse will soon be 66 years old, you might be able to increase your Social Security by thousands of dollars, but there’s a catch: A popular strategy known as “file and suspend” will be shut down for new participants after April 29.
As people rush to file paperwork before the doors close, Social Security’s field agents are so confused by the process they are mistakenly turning people away who should be eligible. An effort to educate the agents is underway.
File and suspend is a way for couples to collect some Social Security benefits in their mid-60s while waiting to get bigger payments as they approach age 70.
The strategy has been a favorite among savvy financial planners for clients near or in retirement because it increases retirement income significantly for couples. For affluent people, the strategy can mean about $60,000 in extra Social Security, said Laurence Kotlikoff, a Boston University economics professor and president of MaximizeMySocialSecurity.com.
Financial planner DeDe Jones, of Lakewood, Colo., said she’s been struggling to claim the benefit for a couple who could get $30,000 more in Social Security using the strategy. A Social Security agent in a Colorado office told the couple they didn’t qualify based on their age, but they should have qualified, Jones said.
“Telling people ‘no’ seems kind of illegal,” Jones said. “They are denying people benefits to which they are entitled.”
Her complaints are widespread among advisers helping clients with Social Security claiming strategies.
“There is rampant confusion in Social Security offices,” said Russell Settle of SocialSecurityChoices.com.
The offices are implementing changes that were incorporated in the Bipartisan Budget Act of 2015 after file and suspend was criticized as a benefit for the rich. Kotlikoff has criticized the change, pointing out that by abandoning file and suspend, low- and moderate-income spouses won’t get a necessary boost in retirement money. Recently, he has been blogging on the mistakes Social Security offices are making as they turn away people who should qualify before April 29.
After getting numerous complaints from advisers and individuals throughout the U.S. during the past few weeks, the Social Security Administration issued a statement Feb. 24 to better inform its agents. A Social Security spokesman said the administration will use interactive videos this month to train staff on the new rules.
Under file and suspend, when a married person turns 66, he or she can file to claim Social Security benefits but then ask to hold off on getting paid benefits. It’s usually a husband. The reason: By taking the official action of claiming the benefits, he sets in motion a rule in which his spouse can then claim what are known as “spousal benefits.” Those benefits are a portion of what the husband would receive based on his own working years.
With the deadline looming, the spouse can then claim spousal benefits at age 66 as long as he or she was at least age 62 on Jan. 1, 2016, and the couple starts the file-and-suspend process and a “restricted application.”
With spousal benefits coming regularly, a couple will have some Social Security income while they wait to claim their full Social Security benefits years later. Each year they wait after age 66, the benefits increase about 8 percent — a large percentage that financial planners point out is more than an investment can guarantee. If they wait until age 70 to draw their full Social Security benefits, those benefits will be 32 percent greater than if they started getting the benefits at age 66.
While either spouse is eligible to claim spousal benefits, usually it’s the one whose earnings over a lifetime tend to be smaller. Letting the higher earner’s Social Security benefits grow until age 70 provides the greatest advantage. As time goes by after filing for file and suspend, a couple can decide they need Social Security before age 70 and can change their mind about waiting. But their monthly payments will revert back to age-66 levels, Kotlikoff said.
In Social Security offices a common mistake has been to focus on age incorrectly. While the person suspending Social Security must be 66, the spouse can be 62 as they start the process. To qualify, the spouse should have been born in 1953 or earlier, Settle said.
“I’m getting phone calls every day,” he said.
Anyone who used the file-and-suspend practice previously, or gets in under the wire by April 29, will be able to keep receiving benefits. In the future, an individual will still be able to delay benefits until age 70, but a spouse won’t be able to collect spousal benefits while waiting for his or her own to kick in.
“It’s hard for a normal person to figure this out, and it’s unfair to send a person to battle the bureaucracy,” Jones said.
Rather than dealing with field offices, she said people should inititate file and suspend and a restricted application on the SSA.gov website. In the remarks area of the application, she said, people should “explain what they are trying to do.”
Her hope is that a written application will be reviewed internally by people well-versed in the law, and by filing online the couple can prove that they met the April 29 deadline.