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Congress May Have Just Robbed You Of $60,000 In Social Security Benefits

The budget bill just quietly erased one of the best filing strategies.

As a fan of How To Get Away With Murder, I'm hoping that an Annalise Keating will step up and save us from the congressional version of How To Get Away With Robbery of Social Security Recipients.

While the title isn't quite as catchy, if you and your spouse aren't 66 by next May,  essentially you may have been robbed of as much as $60,000 that you would have gotten had Congress left things alone.

What Congress did was include language in the federal budget bill that changed the options you have about when and how to file for your Social Security benefits. With the stroke of Houdini's pen, it made the "file and suspend" filing strategy go away. This hurts many and helps few and the president signed it yesterday.

Under current law, you are entitled to collect full Social Security benefits at age 66 but there are financial incentives if you delay. With "file and suspend," you enroll in Social Security but delay starting your benefits, allowing them to grow  by 8 percent a year until you hit 70. That means an increase of 32 percent over what you would have gotten had you started collecting at age 66 -- larger checks for the rest of your life. Additionally -- and here's the bonus in the candy jar -- as soon as you file, your spouse can immediately start collecting half of your check when he/she reaches age 66 -- and thus delay the start of their own benefits and allowing them to grow by 8 percent a year as well. Even your ex-spouse (assuming you were married for at least 10 years and he/she is still single) can join in the file-and-suspend party and claim benefits under your account. 

"File and suspend," like much of Social Security, is hard to understand and figure out. It's one of those things a good financial planner will tell you about. Only about 100,000 couples now file and suspend, but that number was projected to double over the next decade as the baby boom generation ages, according to a report in the Wall Street Journal. And it makes sense that it would have.

Anyway, Congress just went ahead and changed all that. The file-and-suspend claiming strategy will no longer be available in six months. Nor will the ability to collect a lump sum from Social Security between age 66 and 70 if you first opted to not claim benefits and then changed your mind. Gone as well: Filing a restricted claim of spousal benefits.

So yup, Annalise, we've been robbed and we need you.

Now, some spinmeisters may try and tell you that all that Congress did was close a loophole. To me, that's a big underselling of what just went down. I define a loophole as the reason I probably pay more taxes than General Motors. File and suspend wasn't a loophole. It was a small legal advantage that gave people a leg up on the system that is the underpinning of our retirement survival. For some, it will mean a huge difference in the quality of their financial lives. Among those age 65 or over, 64 percent received half or more of their income and 22 percent received all of it from Social Security in 2008, according to Brookings Institution. These are our country's elders; is this how we really want to treat them?

And please don't say that Congress did this to save Social Security. Social Security Administration actuaries estimated what the repeal of these strategies would actually save: About 0.02 percent of the wages and self-employment income subject to Social Security tax over 75 years -- and less than 1 percent of the total Social Security deficit, reports the Wall Street Journal.

I'd say that's much pain for little gain.

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