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Time is Running Out to Use Social Security's Restricted Filing

File and suspend, the “gold standard” for maximizing Social Security benefits, was eliminated when the Bipartisan Budget Act passed in 2015. However, restricted filing still offers some of that strategy for those born on or before January 1, 1954.

By David G. Freitag, CLU

There is something about sand sliding through the small middle section of an hourglass that visually demonstrates the passage of time. Eventually all the sand is gone, and the hour is lost forever. Just like the sand in the hourglass, if you were born on or before January 1, 1954 the time for you to take advantage of a special way to maximize a unique Social Security filing strategy is starting to slip away.

David G. Freitag

David Freitag

In 2015, Congress passed the Bipartisan Budget Act. A great deal of the new law was aimed at budget issues that needed to be resolved as John Boehner retired from House of Representatives and Paul Ryan ascended to the role of House Speaker. However, buried in this legislation were significant changes to the rules that affected Social Security filing strategies. One of the most significant changes to the rules was the elimination of the “file and suspend” strategy.

The file and suspend strategy allowed a worker at full retirement age to file for benefits and immediately voluntarily suspend the payments. The act of voluntary suspension allowed the worker to earn delayed retirement credits between full retirement age and age 70. These delayed retirement credits could potentially add up to 32% to his or her benefit at age 70.

What made file and suspend so different was that once the worker filed for benefits, it opened the ability for a spouse to collect half of that worker’s full retirement age benefit and at the same time, also earn delayed retirement credits on their own record. Using the file and suspend strategy, both workers earned delayed retirement credits while one collected spousal benefits.

File and suspend was the “gold standard” for maximization of benefits for people who had longevity in the family and did not need immediate access to their full benefits for retirement income.

Sadly, the Bipartisan Budget Act sunset the file and suspend strategy and by mid-2016 it was history. However, under a grandfather provision, the new law did provide for a somewhat similar strategy for retirees called “restricted filing.” People born on or before January 1, 1954 are protected by this grandfather provision in the law. Restricted filing is different from the file and suspend strategy. Restricted filing allows a worker at full retirement age to collect a spousal benefit from his or her spouse and earn delayed retirement credits at the same time. The catch is that the spouse must be collecting his or her benefit.

Consider this example of Bob and Mary. Let’s assume that Bob filed for his benefits of $2,000 a month at his age 65. Mary, a year older than Bob and born on or before January 1, 1954, now at her full retirement age, can file a restricted application for spousal benefits and start to collect half of Bob’s full retirement age benefit. Mary’s record in this case is higher than Bob’s earnings record. It is not yet activated. Because it is not activated, she earns delayed retirement credits and at her age 70 could see her benefit increased by up to 32%. Remember, Mary is actually receiving spousal benefits each month from Bob while her own benefits are growing at 8% simple interest each year. Mary is now taking advantage of the grandfather clause that opens the window for her to use this special strategy.

In this example, Bob and Mary are very fortunate. They knew about the restricted filing strategy and put it into action as soon as they could. Unfortunately, a great number of couples in this country, who could use this filing strategy, have not yet taken action. These couples who have not taken action are in fact, leaving money on the table for others to use. Each day they do not act, the benefits of this strategy, like the sands in the hourglass, slip away.

For example, if you were born on January 2, 1953 and qualified for the restricted filing strategy and did not act, one year of spousal benefits are gone. If you were born on January 2, 1952 two years of benefits are gone. Each day you wait is yet another day that a part of those spousal benefits are lost forever. Spousal benefits can be significant. Some could range in the $1,200 to $1,800 a month range.

The restricted filing strategy is well documented on SSA.GOV. This is a direct quote from the site:

Freitag image

For more information, visit https://www.ssa.gov/benefits/retirement/planner/applying7.html#h2.

Note: Restricted filing is not for everyone who qualifies. A short life expectancy or immediate need for income could be reasons not to consider restricted filing. If it does fit into your specific situation, restricted filing could make a significant difference by providing more income during retirement.

About the author

David G. Freitag, CLU®, ChFC®, CRPC, is an industry veteran in financial services and wealth management. He brings a deep passion and unparalleled expertise in Social Security filing strategies and retirement income planning to his current role as a financial planning consultant with Massachusetts Mutual Life Insurance Company (MassMutual). David holds Chartered Life Underwriter, Chartered Financial Consultant, Chartered Retirement Planning Consultant designations, and his Series 7 and 24 securities licenses. He also holds a Master of Education and Bachelor of Science degrees from the University of Maryland.