By Joseph V. Curatolo
If timing is everything, then the timing on this announcement couldn’t be worse. The federal government is eliminating a popular Social Security benefit strategy known as file-and-suspend, used by millions of working men and women.
This action was approved just a few weeks ago in the new budget bill. Announcing a modification so close to the holidays is like the government giving a lump of coal to people nearing retirement age.
The government’s revision was completely unexpected, and strongly criticized for targeting people so close to collecting Social Security.
How does file-and-suspend work? It is complicated, but in essence it allows the higher-paid spouse (Spouse Y) to file for Social Security benefits at full retirement age and then delay receiving them. The lower-paid spouse (Spouse Z) then files to collect half of those benefits, while allowing the full benefit amount to grow 8 percent a year.
When Spouse Y turns 70, his or her Social Security benefit will be larger. When Spouse Z turns 70, he or she then collects full benefits, which also were growing at 8 percent a year. The strategy often provided an extra $500 or more a month until Spouse Y reaches 70 and takes his or her full benefits.
Instead of looking for waste in other parts of the budget, the government decided to take it directly from retirees. Happy holidays.
Beginning on May 1, file-and-suspend ends. If you were born one minute into 1954, forget it. That’s the arbitrary deadline imposed by the federal government in this budget deal and it strikes me as grossly unfair.
File-and-suspend mainly benefits middle-class married couples. It provides a small income cushion, which for some makes all the difference in the world. The extra dollars ensure the electric bill and the grocery bill can be paid without issue.
In the wake of the elimination of this plan, we may see many more seniors working longer or heading back to the workforce to try to alleviate any income shortfalls.
Those already using this strategy will be grandfathered. But those who were planning on using it in the next few years now have to completely rethink retirement strategies. These abrupt changes in Social Security provisions can do more harm than good in the long run.
It’s fair to say changes are necessary to keep Social Security working. But making backroom deals that create major financial planning overhauls for seniors is not the way to move ahead.
The Grinch would be proud.
Joseph V. Curatolo is president of Georgetown Capital Group in Williamsville.