After the market crash of 2000, Congress passed the Senior Citizens Freedom to Work Act. This law was intended to allow people who had previously retired and claimed their Social Security benefit to stop receiving their monthly check while they went back to work and continued to earn retirement credits. Doing so would allow the worker to earn more income while increasing their future Social Security benefit.
An unintended consequence of this adjustment was that it allowed US citizens to explore and take advantage of various strategies to maximize their Social Security benefits that were outside the intent of the law. These strategies became known as the “archive and suspend” strategy and the “restricted application” strategy.
As part of the 2016 budget, President Obama and Congress intend to prohibit people from using these strategies in the future. At the time of this publication, these proposed changes are not yet law. Although both the House of Representatives and the executive branch passed these bills, they still need to be approved by the Senate before the laws take effect. However, this is expected to happen with minimal modifications within the first week of November.
Let’s dive into the differences between the “archive and suspend” and “app restricted” strategies, as well as the steps you should take if you’re currently using one of these strategies.
Archive and Suspend
The file and stop strategy is when Spouse 1 applies for Social Security and then immediately stops the benefit. This may be beneficial because it could potentially allow the person’s spouse to start collecting a spousal benefit based on Spouse 1’s work history. In addition, it would allow Spouse 1 to collect delayed retirement credits until age 70, earning an annual increase in 8% on monthly Social Security payments.
The US government has concluded that this strategy abuses the Social Security system in that it is essentially a double dip, allowing a couple to start collecting a benefit based on the work history of one of them. spouses while at the same time collecting delayed retirement credits on the same work history.
At this time, it appears that this strategy will no longer be allowed six months from the date the law is passed. Also, it is currently unclear what action will be taken against those who have already used this strategy. Currently it seems possible that couples who have already started this strategy can complete the process. Alternatively, couples who have started this process may no longer be entitled to the spousal benefit they are currently receiving until Spouse 1 begins claiming their Social Security benefit, at which time the spousal benefit for Spouse 2 would continue. In the worst case, the US government may try to collect benefits that are no longer allowed from couples who have already benefited from this strategy. (I think this is the least likely outcome, as it would be difficult to take money away from people who have already cashed it out.)
Steps to take if this is you
Suppose your spouse is currently collecting a spousal benefit based on his work history, even though he is not currently collecting his own Social Security benefit. This would be a scenario resulting from the use of the archive and suspend strategy.
If this reflects your situation, significant adjustments may be necessary as this law becomes more concrete. You may need to start claiming your own benefit for your spouse to continue receiving your spousal benefit, or your spouse may need to stop collecting any benefits until you apply for your own benefit. Again, these types of adjustments will likely be implemented six months after the bill is finalized.
Alternatively, and depending on how the law is agreed upon, it is possible that some people seeking to take advantage of the “file and suspend” approach may actually speed up their implementation of the strategy in order to start the process before the six-month deadline. get.
The restricted filing strategy is slightly different from the file and hold strategy in that Spouse 1 files for his or her own benefits and never stops collecting that benefit. However, this can still be beneficial because it allows Spouse 2 the opportunity to begin collecting a spousal benefit immediately while delaying his or her own benefit until his or her 70th birthday. Again, this can be beneficial because it allows Spouse 2 to collect a form of Social Security (the spousal benefit) as soon as Spouse 1 files, but also allows the same spouse to continue collecting delayed retirement credits on their own. employment history. Upon reaching age 70, Spouse 2 can go from collecting the spousal benefit, which was based on Spouse 1’s work history, to collecting his own Social Security benefit, which has been accumulating delayed retirement credits even during years in which a spousal benefit was being collected. .
Again, with a file and suspend strategy, Spouse 2 is collecting a spousal benefit even though Spouse 1 immediately suspended his benefit and is currently collecting delayed retirement credits. With the restricted claim strategy, Spouse 1 never needs to stop collecting their own benefit and Spouse 2 can still collect a spousal benefit while earning delayed retirement credits on their own work history. In the future, the US government would like to ensure that each spouse is collecting a benefit (either self or spousal) Prayed earn delayed retirement credits, but not both.
However, the restricted request strategy is being phased out over a different period of time than the archive and hold strategy. In a nutshell, as long as a person turns 62 before the end of 2015, they will be allowed to use the restricted application strategy. In contrast, people who will not turn 62 before the end of the year will not have the opportunity to take advantage of the restricted application strategy.
Steps to take if this is you
As long as both spouses are at least 62 by the end of the year, your strategy likely won’t break. However, if one of the spouses is not 62 by the end of the year, he may need to reconsider his strategy.
Talk to your financial planner
If you have any questions about how these changes will affect your Social Security benefit, talk to your financial advisor.