SS File and Suspend to End?

[jdmorton]

Saw a discussion on another retirement message board that the proposed federal House budget bill will eliminate "unintended loopholes", which supposedly includes file and suspend.

Here is a link to a column today by Larry Kotlikoff: Column: Proposed budget bill would have devastating effects on millions' Social Security benefits

 

[ejman]

Wow. Very interesting. One of the arguments frequently used by the wait till 70 crowd is that they will have plenty of warning of proposed legislation so as to take evasive action before any law modifying SS benefits is enacted. I first heard of this today. It looks like it will be passed by the house tomorrow, the senate shortly thereafter and then signed into law by the President when - next week?

 

[growing_older]

forced to take their retirement benefit at full retirement age and if their spousal benefit exceeds their retirement benefit, they will end up getting absolutely nothing in return for each and every penny of taxes they paid to Social Security over their entire working lives.

So they are FORCED to take a larger benefit than they would have had on their own record. I'm not thinking this is the same as "getting nothing"

It's a potentially big reduction in benefits for people who were planning to take advantage of this loophole, but it was always a loophole and often cited as such, even by advocates who devised these complicated file and suspend strategies to get maximum benefits.

 

[thefinancebuff]

So they are FORCED to take a larger benefit than they would have had on their own record. I'm not thinking this is the same as "getting nothing."

I agree. They are getting everything based on what they paid in, plus a bonus. Some others who earned more only get benefits based on what they paid in, with no bonus.

 

[Telly]

IF it passes as-is, I expect it to be changed once word gets out and it hits the fan. I doubt many (any?) in congress understand much about SS.

I don't think my plan to file-and-suspend at age 67 so DW can file for spousal benefit at the same time on my record at her age 66 is a complicated strategy. Her own SS record is pretty sparse.

I think the SS changes in the bill will be viewed by many as an under-handed modification of SS, with no warning, hidden in a big bill with a short fuse.

 

[timo2]

simplifying social security benefit options seems like it would cut into Mr. Kotlikoff's business for his calculator. That said, not exempting current recipients of the various schemes is probably unfair. The only thing worse would be to make it retroactive and go after people to pay back some funds.

 

[rodi]

Interesting and kind of scary that the whole thing only has a 6 month warning built in (If I'm reading the article correctly.)

The article only mentions kids in terms of disability and the spousal caretaker (pre SS age) benefit. I'm wondering if they are messing with the regular child benefit (minor children can qualify for a benefit if a parent is collecting SS.) That would impact our household.

We aren't planning on the spousal file/suspend benefit for a few reasons: 1) we have almost 10 years of age difference. 2) DH started at 62 to tap into the child benefits. 3) I was the high earner.

I think I need to go find more details about these changes.

 

[rodi]

Here is a link to the proposed budget text:

http://docs.house.gov/billsthisweek/20151026/BILLS-114hr-PIH-BUDGET.pdf

 

[rodi]

OK - our family is clear on the kids benefit. DH turned 62 before 2015 - so child benefits will not be effected.

Section 831 (page 74) of the document I linked outlines the changes.

 

[stepford]

Here is a link to the proposed budget text:

http://docs.house.gov/billsthisweek/20151026/BILLS-114hr-PIH-BUDGET.pdf

Thanks for the link. I particularly liked the part where they officially redesignate the small rotunda in the House as the "Freedom Foyer". Doubtless a great place to enjoy one's Freedom Fries whilst contemplating further legislative mischief.

 

[NYEXPAT]

Interesting! I just got my award letter the other day and am waiting on the kiddes. A bit more difficult as it has entailed going to the embassy 3-4 times to provide documents. Wife is 28 yrs. younger and I was planning on suspending in four years. Besides updating the spreadsheet, we may have to rethink repatriating to the USA.

 

[NYEXPAT]

OK - our family is clear on the kids benefit. DH turned 62 before 2015 - so child benefits will not be effected.

Section 831 (page 74) of the document I linked outlines the changes.

+1
Priceless, I turn 62 next month!

 

[ronin]

For those who are single or like me who's spouse is GPO'd out of eligibility there is this:

‘‘(3) In the case of an individual who requests that such benefits be suspended under this subsection, for any month during the period in which the suspension is in effect—‘‘(A) no retroactive benefits (as defined in sub-section (j)(4)(B)(iii)) shall be payable to such individual;

I planned on using file and suspend to protect the ability to claim retroactively back to FRA in the event of a life-shortening health diagnosis. I wonder if this means that even the current 6 month retro benefit for one who delays filing but doesn't suspend is now kaput? "No retroactive benefits..." seems to be be pretty clear, but this is Social Security so how likely is clarity?

 

[marko]

Up next: means testing!

 

[W2R]

I'm not sure, but I think I will be affected by this. I am 67 and have been receiving divorced spousal social security benefits for the past year, with the understanding that my own SS is still growing until I am 70 (when I planned to switch over to it).

If my understanding is correct, this bill will mean that I will be immediately shifted over to my own benefits which right now are barely greater than my divorced spousal benefits, but less than my own benefits would be at age 70. Then they would remain at the lower ("age 67", not "age 70")
level for the rest of my life, no matter what I do.

Or worse, that that shift won't even happen unless I do it myself. This is very confusing to me and it sure happened fast.

 

[athena53]

Up next: means testing!

They do have means testing. It's in the form of taxation of SS benefits if your income is over certain levels.

 

[BBQ-Nut]

Up next: means testing!

I was going to say that there will be incremental bumps to the FRA - so by the time I get to FRA, it'll be when I'm 70 anyway.

 

[ziggy29]

I was going to say that there will be incremental bumps to the FRA - so by the time I get to FRA, it'll be when I'm 70 anyway.

Pretty much. I suspect every single "too good to be true" loophole and formerly rarely-used workaround which later became too popular for its own good will be plugged by the time I'm 62. And that assumes that when I turn 62 (in 12 years) you can still collect at 62....

 

[marko]

They do have means testing. It's in the form of taxation of SS benefits if your income is over certain levels.

Sorry, I wasn't clear enough for you.

What I meant was the possibility of limiting benefits based on your NW or other income. For example, "you have $2MM in an IRA, you don't need SS at all" sort of thing.

 

[Big_Hitter]

Sorry, I wasn't clear enough for you.

What I meant was the possibility of limiting benefits based on your NW or other income. For example, "you have $2MM in an IRA, you don't need SS at all" sort of thing.

won't happen - one of the founding principles of SS (and any other social insurance program) is that need is presumed

 

[ziggy29]

Sorry, I wasn't clear enough for you.

What I meant was the possibility of limiting benefits based on your NW or other income. For example, "you have $2MM in an IRA, you don't need SS at all" sort of thing.

Possible in terms of income, IMO. It would be a mostly unworkable mess to try to do it along the lines of net worth, though. Which means that for the relatively well-to-do LBYMer, I doubt there's much cause for alarm.

 

[Mulligan]

I also read in paper they are robbing Peter to pay Paul. The disability part of the fund is about empty and they are going to shift funds from SS retirement fund to bulk it up. Well if memory serves, that fund isn't funded so fully either.... Avoiding the problem as long as possible I guess is the plan.


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[Tadpole]

I'm not sure, but I think I will be affected by this. I am 67 and have been receiving divorced spousal social security benefits for the past year, with the understanding that my own SS is still growing until I am 70 (when I planned to switch over to it).

W2R, I think my situation is the same as yours except I am still married to the spouse in question. Last December I reached full retirement age and applied for my spousal benefit. I am currently letting my own entitlement go unclaimed until I am 70. I can't figure out what this agreement means to people in our situation. Are we grandfathered or not?

If my understanding is correct, this bill will mean that I will be immediately shifted over to my own benefits which right now are barely greater than my divorced spousal benefits, but less than my own benefits would be at age 70. Then they would remain at the lower ("age 67", not "age 70")
level for the rest of my life, no matter what I do.

Or worse, that that shift won't even happen unless I do it myself. This is very confusing to me and it sure happened fast.

Are we going onto our own entitlement or do people over 62 get to go ahead with the age 70 scheme? If we are forced onto our own entitlement in mid year, we may lose any of the 8% we have earned since it appears to be awarded at the end of the year. We also lose the difference between our own benefit and the spousal times the number of months we have been collecting since, without the age 70 schemes, we probably would have collected at full retirement age.

I rather doubt, for some reason, that they will just take care of any switching for us. Where did you see that people over 62 that were doing what we are would be affected? I guess when I saw 62, I thought people over 62 could still run this scheme even if they haven't started it yet.

Color me confused too.

 

[W2R]

Some of us are already on spousal or divorced spousal benefits, and waited to do this until FRA in order to allow our own benefits to grow until age 70 (at which point some of us planned to switch to our own, by then higher benefits). I am not sure but there is a concern that the pending legislation will change SS law on us in midstream so that we cannot get our full (age 70) benefits when we are 70.

I’ve never heard of a change in Social Security law that eliminates benefits for people already collecting, but this is what’s in this bill. This will cost millions of households tens of thousands of dollars. Worse, it will induce those who have suspended their benefits in order to collect higher benefits at 70 to restart their benefits at permanently lower levels in order to maintain their family’s immediate living standards.

Forbes Welcome

The Forbes article discussed this a little bit.

I know that in my case, had I known this in advance I would NOT have collected my divorced spousal benefits at all. I have always planned on, and counted on, my full age 70 benefits from age 70 on.

Are we grandfathered or not?

Tadpole, I am not very good at interpreting these things. But for what it's worth (possibly very little), my understanding is that we are NOT grandfathered.

 

[MichaelB]

The only source so far on this is Kotlikoff, and this is his bread and butter. I'm a bit skeptical things are as severe as he claims, especially the part that reduces current payments.