Following the post-COVID stimulus hangover in 2022, the bull market has continued to run. One of the key factors was the Federal Reserve’s decision to
Congress Overhauls Social Security Spousal Benefits
Published Date : November 4, 2015
When Congress and President Obama struck a budget deal last week, political and market observers alike cheered as years of partisan gridlock seemingly came to an end, if only briefly. Those who probably aren’t cheering as much? The many Baby Boomers nearing retirement who saw the Social Security system turned on its ear with the curtailment of a widely utilized and lucrative benefits strategy known as “file and suspend.” Using this wealth maximizing tactic, married couples with at least one spouse at full retirement age have been able to both grow their future annual Social Security benefits while simultaneously drawing additional benefits, in the form of spousal benefits, in the present. In 2009, the Center for Retirement Research estimated that this “file and suspend” strategy, if pursued by all eligible couples, would cost $9.5 billion per year and significantly more in future years; thus it would become a prime target for a Congress wanting to eliminate potentially onerous unintended loopholes in the Social Security system. While dramatic changes are afoot, it’s important to note that Congress will grandfather those currently employing “file and suspend” while also leaving open a six-month window for those wishing to take advantage of it for the first time.
To understand how Congress arrived at this point requires a bit of history. Prior to the recent battles over debt ceilings and government shutdowns, Congress passed legislation in 2000 allowing those who had reached full retirement age (as determined by year of birth) to file for Social Security, and then voluntarily suspend payments for themselves, allowing their annual benefits to grow at 8% a year. Subsequently, the spouse would file for spousal benefits and immediately receive 50% of the suspended payment amount. This was part of a law designed to encourage more seniors to work, since taking Social Security while working normally results in a discounted benefit.
To illustrate “file and suspend” in action:
A two income couple both hit their full retirement age of 66 in 2015: the husband in March, the wife in June. The husband applies for his retirement benefits on his 66th birthday and then immediately suspends his Social Security, so his benefit can continue to grow 8% a year to his age 70. At 66, the wife applies to take spousal benefits only: she receives 50% of her husband’s entitlement, and allows her own earned benefit to grow until she is 70.
According to the Social Security Administration, the maximum benefit for a high earner retiring at 66 in 2015 is $2,663, or $31,956 per year. For an individual with full Social Security entitlement, a spouse can collect half of that amount —$1,331.50 a month, or $15,978 per year—based on the earning history of the other, while allowing his or her own benefits to grow. At 70, the spouse can collect his or her own larger benefits and the spousal benefits end. Depending on the earnings history and ages of the spouses when this strategy is implemented, combining primary and spousal benefits could mean tens of thousands of dollars per year of Social Security income. And benefits are automatically adjusted each year to keep up with inflation.
Under the new law, no one can receive benefits on the earnings record of a spouse whose benefits are suspended. This recent budget deal does not, however, mark a definitive end to “file and suspend.” In addition to the grandfather clause for those couples currently implementing this strategy or capable of doing so in the next six months, an allowance has also been made for those individuals who want to correct their Social Security filing of benefits. If a retiree goes back to work or wishes to change his or her Social Security strategy, Social Security payments that have already started can be suspended and be eligible to accumulate 8% annual delayed credits to age 70.
The Bureau of Labor Statistics estimates that 78 million Baby Boomers will file for retirement benefits over the next 20 years – an average of 10,000 baby boomers retiring each day. Against the backdrop of Congressional fiscal battles, it is likely that further changes to Social Security loom. Social Security strategy is already complicated and the new law requires careful analysis of each unique circumstance. With these recent policy changes in mind, anyone nearing retirement or wishing to reaffirm their previous elections should consult their Wealth Manager for a thoughtful analysis and financial planning assessment. The next six months will be a vital period for Social Security planning.
Articles and Commentary
Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.
Video Presentations
All video presentations discuss certain investment products and/or securities and are being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect Sand Hill Global Advisor’s (“SHGA”) or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. Any comments, opinions, or recommendations made by any host or other guest not affiliated with SHGA in this video do not necessarily reflect the views of SHGA, and non-SHGA persons appearing in this video do not fall under the supervisory purview of SHGA. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.
Other Posts By This Author
- – The Flexibility of the California Uniform Directed Trust Act
- – The Advantages of Exit Planning: Secure Your Legacy and Maximize Your Wealth
- – Include Personal and Financial Planning in the Sale of Your Business
- – Help the First Responders Help You
Related Posts
- – An Optimal Approach to Beneficiary Designations and Your Children
- – The Indispensable Role of Professional Eldercare Management Services
- – Understanding Qualified Charitable Donations: A Guide for Donors
- – New Rules for Unused 529 College Savings Funds
- – Understanding the Terms: All About That Basis
Recent Posts
