Prior to the act being signed on November 2, 2015, a person who was eligible for Social Security benefits and had reached Full Retirement Age (FRA)-mainly 66 for those born in 1949 or earlier-could file for benefits and suspend. Meaning, they were declaring that they were eligible to collect their full benefit but they did not want to begin collecting at that time.
This technique is called “Filing & Suspending”. It accomplished two things. First, it made a spouse or minor dependents eligible to collect auxiliary benefits up to half of what the person who filed and suspended, would have collected at their FRA. Second it allowed the filer’s benefit to increase at the rate of 8% per year up to the filer’s age 70.
The filer did have the option of changing his or her mind at any time after filing and suspending. They could request a lump sum payment of the delayed benefit. For example, a person whose benefit would have been $2,000 per month at their FRA, filed and suspended at age 66, but decided at age 68 that they wanted to start collecting monthly benefits, the Social Security Administration would start paying them $2,000 per month and would pay them a lump sum of $53,760. The calculation for the lump sum is as follows;
First year suspended ($2,000/month times 1.08) times 12 months = $25,920
Second year suspended ($2,000/month times 1.16) times 12 months = $27,840
If the filer did not change his/her mind, at age 70 they would begin to collect $2,640/month (1.32 x $2,000) or $31,680 each year. Under the new law, file and suspend was changed effective May 1, 2016, meaning if you are not 66 prior to May 1, 2016 no one in your family will be eligible to collect benefits during the suspension period. Nor will there be an option to collect lump sum payouts.
A filer still has the option not to collect their benefit at their FRA so that the benefit will increase by 8% per year up to their age 70. This not only increases retirement benefits, it also could increase survivor benefits for a surviving spouse.
There is one other important date that was put into the Bipartisan Budget Act of 2015. That is December 31, 2015. Anyone who will be 62 by December 31, 2015 will be eligible to collect spousal benefits against a spouse who had filed and suspended at their FRA or had reached their full retirement age and was collecting their benefit.
One final note; there does not appear to be any changes in the Act affecting benefits for widows/widowers and/or eligible divorcees.
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