A change to Social Security may cost you big money

Photo: mensatic/morguefile.com

by Claudia Mott, CFP®, Epona Financial Solutions

There’s a huge change on the way for retirees, and it may cost them hundreds of thousands of dollars over their lifetimes.

The 2016 Federal Budget bill, which was passed by the House and the Senate and signed by President Obama last week, included an important provision that will eliminate two popular Social Security filing strategies: “File and Suspend” and “Restricted” applications.

These options for receiving Social Security payments enabled many to increase their anticipated lifetime benefits by taking a spousal benefit first, while allowing their own benefit to grow 8 percent per year until age 70. This “loophole,” as some call it, was put into place as part of the Senior Citizens’ Freedom to Work Act of 2000.

The change will go into effect on May 1, 2016 and will impact those who have not reached age 62 by December of 2015.

The new law won’t result in any changes for those who are currently receiving benefits.

Others have some options, too.

Individuals who wish to suspend benefits after reaching full retirement age to return to work may still do so, but no spousal benefit can be claimed during that time period.

And retirees born prior to Jan. 1, 1954 who wish to file a Restricted application to receive a spousal benefit may still do so.

There may still be time for those who will be age 66 or older prior to the May 1, 2016 deadline to use the File and Suspend strategy, enabling a spouse or dependent to receive benefits.

Over the past few years, these filing strategies were factored into many long-range retirement plans and without them, the outcomes of those plans  may no longer be the same. In the case of a couple in which both spouses worked full time, the additional benefit may have amounted to a few hundred thousand dollars over a lifetime. For some, the loss of the extra benefit may mean delaying retirement, while others may need to consider part-time employment.

It is important for those who had intended to use either File and Suspend or a Restricted application to enhance their retirement cash flow to revisit this decision with their financial professional and to understand the impact on their financial future.

Claudia Mott is a Certified Financial Planner with Epona Financial Solutions in Basking Ridge. She may be reached at or (201) 572-2177.

This story was first posted in November 2015.

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