Social Security Change: What You Should Know

Maximizing your Social Security benefits: It's been an increasingly popular topic with those approaching retirement.

With "advanced" claiming strategies, couples have found a number of ways to increase their benefits, all while complying with Social Security rules. But one of these strategies will soon be no more.

Early this month, the "file and suspend" strategy was eliminated, as part of the newly passed budget. If you're not familiar with file and suspend, here are the basics: The strategy allows couples—typically where there is a higher-earning spouse and a lower-earning spouse—to squeeze the greatest benefit amount from the program.

It starts with the higher-earning spouse filing for his benefit at full retirement age, which is currently 66 or 67 depending on the individual's date of birth. The filer then suspends the filing immediately. Because he has filed, his partner may now file for spousal benefits, which are 50% of the breadwinner's benefit.

Meanwhile, the higher-earning spouse's suspended benefits continue to grow in size as he earns delayed retirement credits. For every year that he delays, his benefit will grow by 8%, up to age 70. When he finally activates his benefits, he will receive a much larger amount that he would have when he originally filed.

Not only does file and suspend increase the higher-earning spouse's income during his lifetime, but it will also increase the income of the lower-earning spouse if the higher earner dies first. That's because the survivor benefit is 100% of the deceased spouse's benefit amount.

File and suspend was long seen in Washington as an expensive loophole, and the new budget deal closed it. But it won't vanish completely. Couples who are already using the strategy will be grandfathered in under the old rules, and can continue using it. In addition, eligible couples can still take advantage of file and suspend before its elimination becomes official about six months from now.

The end of file and suspend will impact countless couples who might have used the strategy in the years ahead. But there are still other tactics that couples can employ to maximize their Social Security benefits.

Furthermore, it's important to understand that the change does not affect the way Social Security benefits are calculated. Retirees will still be able to claim their benefits as early as age 62. And delayed retirement credits remain in place, meaning that benefits will grow substantially every year an individual holds off on claiming, up to age 70.

The bottom line: Social Security is still an important element of retirement planning, and coordinating your claiming approach with your other sources of income can help to make your retirement as secure as possible.

Please don't hesitate to contact us if you'd like to discuss Social Security claiming strategies or retirement planning in general.

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