The Shrinking Bag of Social Security Tricks

Yesterday, Congress passed a budget bill ending the “file-and-suspend” Social Security planning technique. Does it matter now when to start taking your Social Security benefit?

 

Yesterday’s news headlines provided me with a range of emotions. At first, I felt shocked to learn that Congress still passes bills. Then I felt saddened to learn that the Bipartisan Budget Act of 2015 kills off an effective Social Security planning technique. My arsenal to increase a client’s Social Security benefit just got a little smaller.

The details: The “file and suspend” technique allowed a higher-earning spouse to file for Social Security but suspend the start of collecting their benefit. The other spouse can then start collecting their spousal benefit while higher earning spouse’s benefit increases in value through delayed retirement credits.

Rather than boring you with more details about the (now dying) technique, let’s address the more important issue. Can you still affect the amount of your Social Security benefit? Or should you go with the approach a majority of Americans take and start collecting as soon as you can?

In most cases, the answer is YES – you can still increase your monthly Social Security check! How?

  • Wait until age 70 to start collecting benefits if you can. Each year after your full retirement age that you wait, your monthly benefit goes up 8%. For example, a $1000/month benefit at age 67 would increase to $1,260/month at age 70!
  • Take full advantage of divorcee benefits. Did you know that a marriage lasting 10+ years entitles an ex-spouse to a Social Security benefit based on their former spouse’s earnings? For a divorced woman that earned less than her ex-husband, she can collect Social Security from her ex-husband’s benefits without reducing the benefit available to him (even if she hoped it would).
  • Don’t forget about taxes and earnings. If you start collecting benefits before your full retirement age, your benefits could be reduced by $1 for every $2 you earn in excess of about $15,000/year. Also, the sources of your income can affect your tax bill each year, to the tune of thousands of dollars!

My point? When figuring out your Social Security plan, getting professional advice could make a huge difference in your retirement income and lifestyle. Work with a good adviser (especially a fee-only CFP professional) who uses software that can analyze the possibilities for your unique situation. Even though Congress may have killed the “file and suspend” technique, you can still get the most from your hard-earned Social Security benefit.