Popular Social Security Benefit Cut Looming for Seniors

A popular Social Security benefit that has allowed seniors to boost their lifetime payments by as much as $60,000 is being phased out April 29, leaving many with significantly lower retirement incomes.

The elimination of the so-called “file and suspend rule” takes away what some have called a loophole that has allowed seniors 66 and older to boost their Social Security benefits by 8 percent each year. Some experts say the cut — one of several Social Security benefits reductions contained in the budget act passed by Congress and signed by President Barack Obama last year — could be the first of many made to the program in the years ahead.

The Social Security trust fund is projected to expire in 2033. With an estimated 10,000 Baby Boomers turning 65 every day for the next nine years, costs for the program are being stretched thin because fewer younger workers are paying into the system.

The file and suspend rule applies to married couples, allowing one spouse at full retirement age (66) to file for benefits but immediately suspend collecting them. That enables that person to grow his or her own benefits by 8 percent a year until age 70, when benefits max out. But it also allows his or her spouse to file for spousal benefits based on the filed-suspended-record that are higher than they’d otherwise be.

Social Security benefits are based on a person's lifetime income. As a result, one spouse’s benefits are usually higher than the other’s — because he or she earned a greater income and paid more into the program over a lifetime. As a result, filing for Social Security benefits that are tied to the higher-earning spouse’s income record can boost those payments for both spouses.

In general, financial advisors say it’s best to delay when you start taking Social Security benefits because they increase according to age. The average national monthly benefit for Americans who start taking Social Security when first eligible, at age 62, is about $1,200. At 66, the benefit jumps to $1,600 and at 70 it’s nearly $2,200.

The elimination of the file and suspend rule comes in the same year that seniors will see no annual raise in Social Security benefits —  for the first time in five years and only 3rd time in 40.

The reason: Falling prices last year pushed a decline in inflation. Social security benefits are adjusted each year to take into account the rate of inflation. This is known as the cost of living adjustment, or COLA. It’s down 0.6 percent for the 12 months that ended in September 2015.

If you're 66 and getting Social Security, you can still apply under the file and suspend rule before April 29 by visiting an agency office or by calling (800) SSA-1213. You can also apply online at the Social Security Administration’s Website.

Click on "Apply for retirement," fill out the application, type in the “Remarks” tab, "Please suspend my benefits," complete the e-signature, and hit "Submit now."