May 1 is right around the corner. Normally, that date should not mean anything to you, unless you are turning 66 on or before that date and have not started collecting Social Security.
That’s because in November 2015, the Budget Reconciliation Act was passed. This bill automatically changed and eliminated rules pertaining to Social Security collection strategies forever. The new rules only affect people who have not begun collection and reached age 62 by Dec. 31, 2015 or will be age 66 by May 1, 2016.
Two key items were changed: first, certain spousal collection strategies will no longer be available for those who did not reach age 62 by Dec. 31, 2015. Second, file and suspension no longer will be allowed after April 29, 2016. Caution: File and Suspension is a two-step, two-day process. You must file one day and then suspend the next.
Per the new rules, all spouses who are entitled to their own benefit and may want to collect a lesser spousal benefit at Full Retirement Age (FRA) must have attained the age of 62 by Dec. 31, 2015 to have that option at FRA. FRA depends on your birth year, but is usually age 66 or older. Great strategy for someone who could receive a higher check on their own earnings history but also wants to earn guaranteed credits of 8 percent after FRA for up to 48 months. In addition, they receive a check in the meantime from their spouses’ benefits from FRA and then switch to their own higher benefits at age 70.
File and Suspension allows a covered worker to file for benefits at FRA and then immediately suspend those benefits before collecting any checks. This strategy has many advantages: first, it allows the earner to defer collecting at FRA to earn guaranteed delayed credits of 8 percent each year until age 70, which increases the maximum Social Security check by 32 percent without inflationary increases; second, it allows a spouse of the earner to begin collection of benefits on the earner’s record; third, it allows the income earner to “change their mind” any time before age 70 and be entitled to receive all checks in a lump sum that they could have received from FRA (usually age 66) until the time they “changed their mind.” For example, if I Filed and Suspended benefits at FRA, which was age 66, and I changed my mind exactly at age 69, I could receive 36 months of checks in a lump sum. This can come in handy if you have a medical issue that comes up or if you have a simple change of heart, even if you are not married…