On Retirement

Don't delay on file and suspend Social Security claims

As the Social Security Administration's appointment backlog builds, consider filing online

Dec 2, 2015 @ 12:54 pm

By Mary Beth Franklin

The countdown clock is ticking on the valuable Social Security claiming strategy known as file and suspend. Not only do your clients have to be at full retirement age or older to take advantage of it, but they must submit their request to file and suspend before April 30, 2016.

Miss that deadline and they are out of luck.

Under existing rules, anyone who is 66 or older can file for Social Security benefits and immediately suspend them, allowing their benefits to earn delayed retirement credits worth 8% per year up to age 70, which can increase their benefits by up to 32%.

In the meantime, filing for benefits triggers auxiliary benefits for an eligible spouse, minor dependent child or disabled adult child. It also allows a worker the option of requesting a lump sum payout of suspended benefits in lieu of delayed retirement credits — a particularly valuable option for single individuals.

But under the new rules that were signed into law last month as part of the Bipartisan Budget Act of 2015, none of those strategies will be available beginning May 1, 2016. An individual will still be able to suspend benefits at full retirement age or later, but no family members will be able to collect benefits during the suspension period. The lump sum payout option will also disappear.

DELAYED RETIREMENT CREDITS

Beginning May 1, the only reason to suspend benefits at full retirement age would be to earn delayed retirement credits. That could help someone who collected reduced retirement benefits early to increase their future benefits. But it would mean receiving no benefits during the suspension period.

Unfortunately, the Social Security Administration has yet to issue guidance to consumers or its employees on how to implement the new law.

Dan Martin, a certified public accountant in Babylon, N.Y., told me that he recently applied online to file and suspend his benefits when he turns 66 later this month. “When the SSA agent called to verify my information, he told me that no SSA employee has been notified that the law was changed and thanked me for giving him that new information,” Mr. Martin told me in an email.

He is one of several InvestmentNews readers who have contacted me recently to tell me the employees in their local Social Security offices didn't have any information about the new law.

“Our legislative and policy staff are diligently working with Congress to analyze the intent of the legislation and update our instructions,” Social Security spokesperson Dorothy Clark said in an email. “When we update our instructions, our field office employees also will be updated on the new policies.”

In the meantime, a participant in the Bogleheads.org personal finance and investing forum noted that when he called SSA to set up a phone appointment to file and suspend his benefits, the earliest appointment was two months in the future. “This may be a cautionary note if you were thinking about putting this off until the end of the six-month window,” he wrote.

That doesn't bode well for clients who plan to visit their local Social Security office to file and suspend in person before the April 30, 2016 deadline.

BOOK AN APPOINTMENT NOW

If you have clients who are grandfathered under existing file and suspend rules, urge them to book an appointment now. Or better yet, encourage them to submit their application online.

Clients can file an online application up to four months before they turn 66. (People who turn 66 on May 1, 2016, can claim benefits in April, and therefore are eligible to file and suspend under existing rules.) No need to print and mail the application. Just click “submit now.” They'll get a receipt they can print for their records. It includes a confirmation number they can use to check the status of their application.

Unfortunately, applying online to file and suspend is a bit like a secret handshake. There is no indication on the online application that suspension is an option. Here's what you do: Request your benefits to begin when you turn 66. Later, in the remarks section near the end of the online application, write: “I want to suspend my benefits.” SSA will review the application once it is submitted and then contact you by phone, usually within a few days, to verify your intentions.

Whether your clients choose to file and suspend online, by phone (1-800-772-1213) or in person, tell them not to delay.

The distant future doesn't look much better. “SSA faces several challenges as it pursues its mission to deliver services that meet the public's changing needs,” wrote Inspector General Patrick O'Carroll in his latest semiannual report to Congress. “One of SSA's greatest challenges is the loss of its most experienced employees as the agency estimates that about 45% of its employees, including 54% of its supervisors, will be eligible to retire by FY 2022.”

Mary Beth Franklin is a certified financial planner.

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