Thank you to Randy Anderson – AXA Advisors and Jim Loquai – Excel Financial for the following Social Security retirement benefit changes.
Key Social Security Claiming Strategies Are Going Away!
President Obama signed into legislation yesterday morning the Bipartisan Budget Act of 2015 which will essentially eliminate two key Social Security claiming strategies over the next 6 months to 4 years.
Two key claiming strategies – File and Suspend, and Filing a Restricted Application – will be a thing of the past. Millions of Americans will be affected by these changes.
These strategies are complicated and I will try to keep the explanations simple for both strategies and how the new legislation will impact them along with key dates for implementation.
File and Suspend
Old Strategy – Prior to the passage of the new bill a spouse at full retirement age (FRA) could file for benefits and immediately suspend the application. This would allow for the other spouse to begin collecting a spousal benefit – at FRA this would be an amount equal to 50% of the higher spouse. The higher spouse could then delay their benefits to age 70 and take advantage of a 32% increase in their benefits.
What Will Change – The new legislation will eliminate this strategy in six months after the bill is signed. After this time, a spouse will only be able to claim a spousal benefit if the higher earning spouse has started their benefit. They will no longer be allowed to suspend their application and delay benefits to age 70.
Implications – Delaying a benefit as long as possible, especially for the higher earning spouse, can still be very advantageous. With the elimination of file and suspend it will be even more critical for people to do proper planning to determine at which ages they should start taking their Social Security in order to maximize the potential benefit during their lifetimes. Also, what other strategies can be used to allow the higher earning spouse to delay as long as possible.
Old Strategy – This strategy was probably used more than file and suspend and could have the biggest impact on couples who both worked and earned Social Security benefits. With this strategy the lower earning spouse would start their benefit – often before Full Retirement Age (FRA). The higher earning spouse could then at FRA begin collecting a spousal benefit earning 50% of the lower earnings spouse’s benefit and allow them to grow their own benefit at 8% per year to age 70. At age 70 the higher earning spouse would then switch to their own benefit which is substantially higher.
What Will Change – the good news is that this strategy will be allowed for those people who will be age 62 by the end of this year and can be implemented 4 years from now when they turn 66. The bad news is that for those people under the age of 62 this strategy will be gone.
Implications – It is important that proper planning be done for those over 62 to see if this strategy is a smart one for their situation. For those folks under 62 it will be important to plan for various other ways to maximize your benefits in the future. For Divorced People – this will eliminate the ability for those under 62 to implement a spousal collection strategy based on their ex’s record in order to delay their own benefit. Survivor Benefits – these will continue as they have and will not be impacted by the new legislation. Widows and widowers will still have options regarding using their own benefits or the benefits of the deceased spouse.
I hope these explanations have helped. There are many issues that will surface regarding the eventual elimination of these two strategies and as always feel free to contact me with questions regarding this.