Think you have your Social Security strategy figured out? It’s time to take another look. Late in 2015, Congress voted to limit the advantages of “file-and-suspend,” an option used by many Americans to maximize Social Security payouts. If you’re 66 or older now, you have just until April 29, 2016 to lock in all the advantages of the file-and-suspend strategy. Those younger than 66 will also need to review their strategy for collecting benefits in light of recent changes.

In this post, I explain what you need to know and do, depending on your age.

Limiting the Advantages of File-and-Suspend

In effect, Social Security pays people to wait: Say you turned 66 in 2015, but opted to wait until age 70 (2019) to collect what would normally be a $1,000 monthly benefit. That four-year postponement would increase your monthly check to $1,320! You’ll still get a higher payout if you postpone going forward (#1 advantage below), but two related advantages (#2 and #3 below) will go away for most people.
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“File-and-Suspend” Advantages Prior to 2016

People turning 66 (the Full Retirement Age) would file for Social Security and request that their payments be suspended. The advantages:

• #1: Your benefits would then continue to grow 8% per year (for up to four years).
• #2: Your family members could begin collecting benefits.
• #3: You could “unsuspend” any time and get a lump sum of all payments skipped during the suspension.

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THE CHANGES ARE AGE-DEPENDENT

If you’re 66 or older by April 29, 2016, YOU NEED TO ACT FAST!

You have a short window of time – the next three months – to elect to use file-and-suspend in order to retain all three advantages (see box above). After April 29, 2016, suspending your benefits will also suspend all family benefits. Plus, you won’t be able to get a retroactive lump sum payment if you “unsuspend.”

An added twist: former spouses (in a marriage that lasted for at least 10 years) will not be able to collect the 50% divorced-spouse benefit if their ex-spouse suspends. This makes a former spouse vulnerable to his/her ex’s decision to suspend, a nasty surprise for many no doubt.

NOTE: If you’ve already filed for Social Security and opted to file-and-suspend, you’re grandfathered in (pun intended). All the advantages of file-and-suspend will continue for you.

If you’re 62 to 65 years old as of Jan. 1, 2016, take note:

You will still be allowed to file a “restricted application,” when you reach Full Retirement Age (66), IF: (1) You are entitled to Social Security; and (2) You are (or were) married to someone who has filed for Social Security. In this case, you will be able to collect an amount equal to 50% of your spouse’s (or ex-spouse’s) benefit while you suspend your own benefit to keep that growing 8% annually until age 70. NOTE: If your spouse then opts to suspend his/her Social Security after April 29, 2016, your entitlement to the spousal benefit could be cut off.

Some things to keep in mind: If you’re single without dependents, suspending Social Security until age 70 to maximize your payments can make sense. But, if you’re married, and/or have dependents who would collect Social Security based on your benefit, you should review your retirement income strategy to determine how to replace the higher “file-and-suspend” payments you were expecting.

Younger than 62 on Jan. 1, 2016? You may need to revise your plans.

Whether you claim benefits early (starting at age 62) or wait until 66 (Full Retirement Age), once you file you will be paid the highest benefit you’re entitled to, whether that’s a spousal benefit or your own benefit. You won’t be allowed to choose.

You’ll still be able to postpone collecting Social Security to boost your payout by 8% annually for four years. However, unlike those who were 62 by Jan. 1, 2016, (see above) you won’t be able to collect a spousal benefit while letting your own benefit grow. If you had been planning to do this, we can help you determine the next-best option.