401(k) Coordination Bombshell: Budget Deal Ends Social Security ‘File and Suspend’
Advisors know (or should know) about the importance of coordinating Social Security with the 401(k) portfolio. Rather than this “other” stream of income separate and distinct from accumulated retirement assets, how and when to take the government entitlement will materially impact every other part of a comprehensive plan, and can add years of longevity to the retiree’s investments.
Two strategies central to this coordination are “file and suspend” and “restricted application.” According to AARP, file and suspend can raise benefits for qualifying couples through the use of a combination of spousal benefits and Social Security delayed retirement credits. At least one member of the couple must have reached full retirement age, which is currently 66 for people born between 1943 and 1954.
Similarly, restricted application allows a recipient to apply for benefits based on a spouse’s record while delaying the recipient’s own social security benefit. By doing so, they will get 50% of the spouse’s benefit amount while continuing to earn delayed retirement credits of 8 percent each year to a maximum at age 70.
However, quietly tucked away in the latest budge deal is a provision to end the strategies, which some experts claim could decrease Americans’ payout by $50,000.
The Wall Street Journal notes that in recent years, the Obama administration has targeted File and Suspend and similar strategies—which detractors have termed aggressive—in its annual budget to raise revenue.
“Social Security Administration actuaries recently estimated the repeal of these strategies would save around 0.02% of the wages and self-employment income subject to Social Security tax over 75 years—or less than 1% of the total Social Security deficit of about 2.68% of that income,” the paper reports.
The bill, seen as part of a compromise to avoid a government shutdown, passed the House Wednesday and has moved to the Senate.
See Also:
- Why 401(k) and Social Security Coordination is Critically Important
- Voya Financial Adds Social Security, Healthcare Features to Digital Enrollment Platform
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of 401(k) Specialist and Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots. Experienced financial services content executive specializing in creative new media delivery. He joined the American Retirement Association in 2023 as Chief Content Officer, overseeing communications for the organization, as well as its sister organizations.
