On November 2, 2015 President Obama signed a budget deal that dramatically changed Social Security claiming rules. For many Americans Social Security is the foundation of a good retirement income plan. These changes to Social Security underscore the importance of having a good retirement cash flow plan that is flexible and can withstand public policy risks.
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Under the old law there were two primary claiming strategies that were commonly known as “File and Suspend” and the “Restricted Application.” We had been able to help many retirees plan to increase their lifetime social security income by understanding how to structure claiming strategies that maximized benefits over two peoples lifetime. In many instances this planning had the potential to significantly increase projected lifetime income from Social Security.
The new budget deal will begin phasing out the “File and Suspend” and “Restricted Application” strategies.
We are working hard to understand the full impact these changes will have on our clients, community and your existing retirement cash flow plan. Below are a few highlights that may be important to your retirement income plan.
Restricted Application for spousal benefits:
The old law would allow you to file a restricted application in order to restrict taking your own benefit and instead receive just a spousal benefit based on your spouses earnings record. By filing a restricted application at your full retirement age you would allow your own social security benefit to earn the 8% delayed retirement credits. At age 70 you would switch from your spousal benefit to your own benefit.
The new law that has passed will begin phasing the restricted application strategy out. For people who were born before January 1, 1954 the option to file for only spousal benefits will continue. However for those who were born January 2, 1954 and later, an application for spousal benefits will automatically trigger entitlement to all other benefits. So you will no longer be able to file a restricted application and only receive your spousal benefits while delaying taking your own benefit if you were born after January 2, 1954.
File & Suspend:
Under the old law you could voluntarily suspend your benefits. If you were full retirement age you could elect to file / activate your benefit and then put your benefit into suspense. This would allow your own benefit to continue to earn 8% per year delayed retirement credits and by activating your benefits it also gave your spouse, who was full retirement age, more claiming options. Because you had filed for benefits, your spouse became eligible for spousal benefits based on your earnings record. Your spouse then had the choice of restricting their application to file only for spousal benefits or file for their own benefit.
The new law causes all benefits to stop being paid under a voluntary suspension. So if you suspend taking your own benefit, then your spouse will no longer be able to collect a spousal benefit during the time your benefit is suspended.
The old law said that if you filed for your benefits at age 66 and put them into suspense, you could file for a lump sum of deferred benefits at a future time. The new law also eliminates the ability to request a lump sum of benefits.
The changes to voluntary suspension are being implemented much more aggressively than the restricted application changes. If you have already filed for benefits and put them into suspense, you are grandfathered in under the old law until you reach age 70 or un-suspend your benefits. The new law only gives you 180 days to file and suspend benefits. So if you are currently full retirement age, then you have the next 180 days to file and suspend, otherwise your benefits election will fall under the new law.
The good news is that the new law did not impact widow benefits. Widows will continue to have the flexibility to restrict their application.
If you would like to be notified about future developments please click here to register, and we will email you updates as we learn more.
For some of the people we have served, a good Social Security claiming strategy made the difference between being able to retire with confidence rather than worry about potentially running out of money in retirement.
I think it is important to remember that our elected leaders literally changed the rules overnight. I recently wrote an article titled “Do You Have A Social Security Back up Plan” that you may be interested in.
Below are some additional resources to help you understand what just happened as well as links to help you understand how your elected leaders voted on these changes to your Social Security.
Below are several articles to help you understand these changes:
Forbes Article – New Budget Deal Is Cutting Your Social Security Benefits And It’s A Good Thing
Investment News Article – Advisers Rethink Retirement Plans Amid Social Security Changes
This budget was titled “Bi-Partisan budget Act of 2015.” Read the articles below to see how your elected leaders voted.
Click Here – To Learn How Your Congressman Voted On The Budget Deal. (The Daily Signal)
Click Here – To Learn How Your Senator Voted On the Budget Deal. (The Daily Signal)
USA Today – President Obama Signs 2 Year Budget Deal