How the Federal Budget Deal Could Cost You $50,000

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Congress' new budget deal kills a Social Security claiming strategy that helped many Americans boost their retirement benefits. Find out what the change means for you.

The Senate passed a budget deal Friday that avoids cuts to key Social Security benefits, but effectively nixes a claiming strategy that helped some Americans boost their retirement benefits by as much as $50,000.

The Senate followed the lead of the House, which had passed the agreement known as the “Bipartisan Budget Act of 2015” on Wednesday.

In a statement issued today, President Barack Obama commended Democrats and Republicans for coming to an agreement and said he looks forward to signing the legislation as soon as it reaches his desk.

The upside of the agreement, according to Obama, includes protecting seniors by avoiding “harmful cuts” to Social Security.

The Washington Post reports that the agreement prevents 20 percent across-the-board cuts to Social Security Disability Insurance benefits that would have taken place next year.

One of the ways the budget agreement frees up Social Security funds is by effectively ending what’s known as the “file-and-suspend” claiming strategy.

As Forbes explains this legal but controversial strategy, which some people consider a loophole that enables double-dipping:

File and suspend is a strategy used by married couples to simultaneously generate a paycheck from Social Security while deferring at least one of the couple’s retirement benefits into the future. Such practice allows married couples to take advantage of the deferral credits that increase Social Security retirement benefits by 8 percent per year after full retirement age and still get a Social Security benefit check each month.

(To learn more, check out “16 Ways to Get Bigger Checks From Social Security.”)

Boston University economics professor Laurence J. Kotlikoff writes in a PBS column that effectively ending the file-and-suspend strategy could cost millions of households up to $50,000 in lifetime benefits.

Kotlikoff explains:

For those now under 62, the bill extend​s deeming, which now ends at full retirement age (age 66), through age 70. Deeming is the requirement that if a) you take your retirement benefit and are eligible to collect your spousal benefit, you are forced to take both at once and b) if you take your spousal benefit, you are forced to simultaneously take your retirement benefit.

Since Social Security effectively only pays the larger of the two benefits, being forced to take both benefits at once means that you lose one of the two benefits.

To learn about other ways to maximize your Social Security benefits, be sure to visit our Solutions Center.

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