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Social Security Changes Bring an End to 'File and Suspend'

The Huffington Post logo The Huffington Post 2/03/2016 Paul Solman

Readers about to take Social Security beware. The rules for maximizing your benefits have changed radically. And April 29 is a date to be especially aware of.

Why April 29? Because for many of you, it's the last day to use a strategy (or, if you prefer, loophole) with which I and my co-authors -- economist Larry Kotlikoff and financial journalist Phil Moeller -- kicked off our bestseller, Get What's Yours: Secrets to Maxing Out Your Social Security Benefits. I shared the strategy here when the book first appeared in a post entitled "The Money You and Your Loved Ones May Be Leaving on the Table": to file for benefits at what's called full retirement age (66, at the moment) and then suspend them in order to take a spousal benefit while waiting to collect your own maximum benefit at age 70, assuming you can afford to wait. Bear with me, as the strategy and its rationale takes some explaining. (If you know it already, though, in the spirit of Ben Franklin, it would be economical to skip ahead to the subhead "Aggressive Claiming Strategies." As not-so-gentle Ben put it: time is money.)

The road to "runaway bestseller" (it says so right there on later editions of our cover) began in 2010. Larry and I had taken a break from what we optimistically call tennis. Larry took the occasion to ask how old my wife and I were and when did we plan to take their Social Security benefits.

I told Larry we had it all figured out. I was about to turn 66; my wife, 67. We would both wait until 70. I would get something like $40,000 a year at that point, instead of the $30,000 or so if I took my benefits at 66. My wife would get $32,000 instead of $24,000. That's because Social Security rewards people for patience, boosting their check by about 8 percent for every year they wait between ages 66 and 70.

Good, said Larry. But I'm going to make you $50,000 in the next few seconds.

"?," I said, or words to that effect.

Your wife should apply for her Social Security retirement benefit now, Larry explained, since she is already 66. But instead of taking her own benefit, she should tell the person she talks to that she wants to "suspend" it. That is, she should make herself entitled to the benefit by officially registering with Social Security, on the phone, in person at her local office, or online But she should then explain that she will not be taking her benefit right away, but suspending it until some time in the future. In SS lingo, she should "file and suspend."

Next, said Larry, when I turned 66 in a few months, I should also call or visit Social Security [or apply online] and register with the system. But I should not suspend, or apply for my own benefit, even though I too want to wait until 70.) I should file what's called a restricted application and apply for a spousal benefit: 50 percent of my wife's benefit at age 66. Because the filing was restricted to my spousal benefit, my own retirement benefit could be deferred and grow to its maximum value when I turned 70.

My wife and I did as Larry suggested. The strategy worked like a charm. My wife's benefit was about $24,000 a year at age 66. I was eligible to receive fifty percent of that $24,000 a year for each of the four years I waited to take my own maximum benefit at age 70. You do the math. I was, in effect, subsidized handsomely for waiting.

For years now, the United States has been divided into two random camps: those few people who happen to know strategies like file-and-suspend, and the vast majority of Americans who, with respect to Social Security, one might call strategically challenged.

So I began publishing Larry's explanations of this and other "secrets" on the PBS NewsHour Making Sen$e. (His first posting went viral -- or at least bacterial.) And then we wrote Get What's Yours [version 1.0], enlisting Phil to help. We figured it was only fair that everyone should understand how to maximize the Social Security benefits they had earned and therefore, we believed, deserved to get.

But of course what we didn't figure: that the strategy which spawned the book, the strategy that we called a "secret" because so few Americans knew about it, was about to be axed, within a mere nine months of publication.


Maybe we should have seen the axe hovering. In the Social Security section of President Obama's fiscal year 2015 budget proposal, released in March of 2014, it was written: "the Budget proposes to eliminate aggressive Social Security claiming strategies, which allow upper-income beneficiaries to manipulate the timing of collection of Social Security benefits in order to maximize delayed retirement credits."

But in our defense, no such thought or language was repeated in the president's 2016 budget proposal, called "Middle Class Economics," and including the sentence: "In addition to protecting and strengthening Social Security, President Obama will make it easier for Americans to save on their own for retirement and prepare for unforeseen expenses."

"Prepare for unforeseen expenses? To us, file-and-suspend was a way to save more for them by deferring benefits in the short term in order to get higher checks later -- for the rest of your life. So how could the government "protect and strengthen Social Security" by removing a way for Americans to cushion themselves against "unforeseen expenses" -- a spousal benefit that would help tide them over as they waited to claim their own benefit at its maximum possible amount. Moreover, mightn't the government want people to delay filing for benefits? It would cost the Social Security Administration less money up front, at least for many years to come.

But the fact is, whether we ought to have anticipated the elimination of "aggressive claiming strategies" or not, we didn't. Indeed, we didn't even think of the claiming strategy as aggressive until just before the book was published, and we began emailing friends about it. One of them was an eminent Yale economics professor, who emailed back:

"The problem with this is that figuring out how to get more from the government is bad for the government deficit problem!

"My son said it is on the SS website, but this is probably not helpful to the people who one would like to help. [My wife] is 66 and I am 71. I am taking SS benefits (I started at 70) but [she] is not. I guess she could apply now, delay until she is 70, and begin taking spousal benefits now? If so, this is really an outrageous policy. What could be the logic behind it? I thought that spousal benefits were relevant only if your spouse was dead, but alas not. My son, a good liberal, was shocked. He thought, as I did, that Social Security was a basically fair system."

I can't speak for my co-authors, who weren't party to this exchange. But I was taken aback. I had never thought about the fairness issue. I replied, defensively, that file-and-suspend for upper income couples may be "unfair," but the purpose of spousal benefits was clearly benign: to provide some support to non-working wives who were sacrificing income to make the American family ideal of the 1940s-'70s possible. And that there are surely lots of working class couples, married and divorced, eligible for but not taking the spousal benefit. The real unfairnesses, I argued: that Social Security isn't means-tested and that taxes on it are capped at an income level that saves the rich millions -- $118,500 this year.

My professor friend was quick to respond:

"Right, there are many bad things about the tax system. [My wife] and I are probably in the extreme, but we don't take advantage of everything we could to minimize taxes---like doing trusts, etc. If something doesn't pass the smell test, we don't do it. This Social Security thing surely doesn't pass the test, so we are not going to do it." But, he added, "These are all personal decisions, and there is enormous variation. There are really no right or wrong answers, and I don't want to suggest that others should do what we do!"

On February 17 of 2015, Get What's Yours was published. Amazon's sales algorithm was so unimpressed with its prospects, it ordered what it might for an academic tome or a book of poetry: a few thousand copies.

But the media were intrigued, starting with National Public Radio, which ran an interview within days of the book's release, featuring file-and-suspend. This prompted an email from a second distinguished professor, an anthropologist and former university president:

"So, NPR's Morning Edition is telling me how well you and [your wife] are doing....clearly, a loophole needing to be closed so that the better off among us don't make out like bandits...I remember Dave Barry once referring to Florida residents who use their Social Security checks to buy sunhats for their race horses."

Finally, David Rogers of Politico??? wrote to me, summing up the criticism specifically:

"The file and suspend strategy," he emailed, "or as some call it, 'Claim and Claim more,' only works for a married couple--which excludes many SS recipients and certainly many of the poorest who are not married.

Second, this is clearly a strategy that most benefits professional couples who are able to work well past 65. Waiting until 70 is much harder to do for working class married couples as you know, given the nature of their employment.

...I was always taught that Social Security was intended to be a social insurance program not an insurance program for me alone. Roosevelt talked about a base benefit for everyone's retirement. Not to be gamed by those already fortunate enough to be able to work longer."

Rogers has a point, of course. To which there's a counterpoint: that waiting until 70 is a good idea for everyone if they can afford it, yet fewer than 3 percent of Americans currently do wait The spousal benefit makes the wait more affordable. But hey, maybe I'm still being defensive.

On Nov. 2, 2015, however, Congress and the president resolved the formal -- if not my internal -- debate by eliminating this strategy for everyone who had not turned 62 by the end of the year. No gradual phase-in of the new rule, as with the extension of the retirement age years before. No public discussion. Just SEC. 831 of the "bipartisan budget bill": "Closure of unintended loopholes," which contained two toxic provisions for file-and-suspend.

The first made it impossible for anyone younger than 62 at the end of 2015 to take a spousal benefit while waiting for one's own benefit to grow. That's because, going forward, if anyone born after January 1, 1954 takes a spousal benefit before age 70, "such individual shall be deemed to have filed an application for old-age insurance benefits." In plainer English: as soon as you take a spousal benefit, you will be "deemed" -- i.e., considered -- to have applied for your own benefit, which will therefore be locked in at the lower rate. No 8-percent-a-year bump.

A second section of the new bill effectively eliminated most of the advantages to file-and-suspend, period, for anyone who attains their full retirement age after April 29 of this year (2016).

The actual language read that if someone asks to suspend her or his benefit until a later age after April 29, 2016, no "benefit shall be payable to any other individual on the basis of such individual's wages and self-employment income." In other words, if someone suspends, no spouse, ex-spouse, dependent child or parent -- no dependent at all, even if disabled -- can collect on the suspender's record, as I had done on my wife's.

Furthermore, "no monthly benefit shall be payable to such individual on the basis of another individual's wages and self-employment income." In short: if you suspend, you get no benefits, period.

Finally, why should you care? Because 10,000 Americans, including quite likely someone you know or know of (if not you yourself), are turning 66 today. And another 10,000 Baby Boomers will turn 66 tomorrow. Since the changes to the law "shall apply with respect to requests for benefit suspension submitted beginning at least 180 days after the date of the enactment of this Act," which was November 2, 2015, they end on April 29, 2016. Which is mere weeks away. File-and-suspend by then, or never. Only people full-retirement age or older may request to voluntarily suspend benefits, so if you were born on May 1, 1950 or later, you are out of luck.

The bipartisan bill's sudden enactment had dire consequences for me and my co-authors. Not only would Larry Kotlikoff and wife be unable to use the file-and-suspend he has done so much to popularize -- Larry won't turn 66 by April 29 -- but all three of us were suddenly obliged to revise and update a book whose final draft was hard enough to agree upon the first time, and that we were devoutly grateful relieved to be done with. (Phil Moeller had even moved on to writing Get What's Yours for Medicare -- without any co-authors to infuriate him.)

We've spent months now wrangling the revision. It will be out in May, we're told. But our revised won't beat the April 29 deadline. I might have posted this sooner, for which I apologize to HuffPost readers. But I'm reminded by Jerry Lutz, the longtime technical expert (now retired) on whom Get What's Yours relied for accuracy, and who reviewed this post as well, even SSA hadn't published detailed instructions until February.

ps: Here are some links Jerry passed along in which Social Security explains the new rules itself:

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