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Social Security claiming options are off the table

Last week, the world of retirement planning experienced the financial equivalent of a deafening record scratch, courtesy of a Congressional move to end two well-used Social Security claiming strategies. In a matter of months, "File-and-Suspend" and "Restricted Application," which were on the verge of rock-star status, will only be referred to in the past tense.

"File-and-Suspend" and "Restricted Application" — let's just call them "FASRA," because it's not like there aren't already enough government-related acronyms — were, Congress argues, unintended consequences of the Senior Citizens Freedom to Work Act.

Social Security
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Signed into law in 2000, the initial legislative intent of the bill was to give seniors who already had elected to begin receiving Social Security retirement benefits the ability to suspend their Social Security income stream, freeing them to go back to work and, most importantly, to earn additional credits that would increase their now-delayed Social Security benefits in the future.

But over time, the "voluntary suspension" rules evolved into the FASRA strategies. Retirees began to file for Social Security retirement benefits and then immediately suspend them. Why would they want to do that? Certified financial planner Michael Kitces clearly explains it this way: "By filing for benefits, a spouse or even dependent children could become eligible for their benefits, and by suspending, the primary worker could still not receive benefits."

The big opportunity was for dual-income households to engineer the receipt of their spousal benefit. This lesser-known provision of Social Security (and one that isn't going away) permits claimants to receive the greater of two amounts: up to 50 percent of their spouse's benefit or their own accrued benefit.

FASRA gave retirees the ability to receive a spousal benefit now and then pivot to receive their own benefit later. Strategies built around this principle of "claim now, claim more later" effectively allowed resourceful retirees the ability to both possess and consume their cake.

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The bad news is that Section 831 of the Bipartisan Budget Act of 2015 will render FASRA all but dead. Estimates suggested that a high-earning couple could net additional Social Security benefits of up to about $67,000 through the effective employment of FASRA. In the words of the great legal mind Chief Inspector Clouseau, "Not anymore."

So what's the good news? While it's likely small consolation for those intending to squeeze the most out of their Social Security retirement benefits through the use of FASRA, eliminating these "loopholes" greatly simplifies benefit-claiming strategies for most retirees.

Theoretically, with FASRA in play, there were more than 3,000 different iterations of prospective Social Security claiming strategies for a married couple, and the onus was on them to find the needle-in-the-haystack best-case scenario. While there were some excellent resources available to help retirees figure out how they could maximize their benefits — including many financial advisors with a specialty in Social Security — removing a great deal of the mystery involved should offer future recipients greater clarity, and therefore more confidence, in determining their claiming strategy.

What's more, the elimination of "File-and-Suspend" and "Restricted Application" just might help further underscore the most profitable Social Security strategy (for most claimants) still on the table.

That is, waiting as long as possible to begin receiving benefits, because it can offer a retirement income boost for retirees when they're likely to need it most: later in retirement.

— By Tim Maurer, director of personal finance for Buckingham and The BAM Alliance