What’s Changing With
Social Security?
By Greg Patterson
When Congress unexpectedly eliminated two Social Security
claiming strategies as part of the Bipartisan Budget Act of 2015,
retirement planning got a little more complicated for people who
expected to use those strategies to boost their retirement income.
The provision of the budget bill called “Closure of Unintended
Loopholes” primarily addresses two Social Security claiming
strategies that have become increasingly popular over the last
several years. These two strategies, known as “file and suspend” and “restricted
application for a spousal benefit,” have often been used to increase cumulative Social
Security income for married couples. The budget bill has eliminated those strategies
for most future retirees, but you may still have time to take advantage of them,
depending on your age.
File and suspend
Under the old rules, an individual who had reached full retirement age could file
for retired worker benefits in order to allow a spouse or dependent child to file for a
spousal or dependent benefit. The individual could then suspend the retired worker
benefit in order to accrue delayed retirement credits and claim an increased worker
benefit at a later date, up to age 70. For some couples and famihes, this strategy
increased their total lifetime combined benefit.
Under the new rules, effective for suspension requests submitted on or after April
30,2016 (or later if the Social Security Administration provides additional guidance),
the worker can file and suspend and accrue delayed retirement credits, but no one
can collect benefits on the workers earnings record during the suspension period,
effectively ending the file-and-suspend strategy for couples and families. The new
rules also mean that a worker who files and suspends can no longer request a lump
sum payment in lieu of receiving delayed retirement credits for the period during
which benefits were suspended. (This previously available option was helpful to
someone who faced a change of circumstances, such as a serious illness.)
Restricted application
Under the old rules, a married individual who had reached full retirement age
could file a “restricted application” for spousal benefits after the other spouse had
filed for retired worker benefits. This allowed the individual to collect spousal
benefits while delaying filing for his or her own benefit, in order to accrue delayed
retirement credits.
Under the new rules, an individual born in 1954 or later who files a benefit
application will be deemed to have filed for both worker and spousal benefits, and
will receive whichever benefit is higher. He or she will no longer be able to file only
for spousal benefits.
The bottom line
A limited window still exists to take advantage of these two claiming strategies. If
you are currently at least age 66, or will be by April 30,2016, you may be able to use
^ the file-and-suspend strategy to allow your eligible spouse or dependent child to file
i for benefits, while also increasing your future benefit. To file a restricted application
and claim only spousal benefits at age 66, you must have been at least age 62 by the
V end of December 2015. At the time you file, your spouse must have already claimed
Social Security retirement benefits or filed and suspended benefits before the
effective date of the new rules.
Why did Congress act now?
Both the file-and-suspend and the restricted application strategies were made
possible by the Senior Citizens Freedom to Work Act of 2000. Part of this act’s
original intent was to enable individuals to change their minds in the event they
determined that they wanted to work longer but were already receiving Social
Security retirement benefits. However, this opened up some claiming strategies that,
while legal, went beyond the origined intent of the legislation. Congress used the
budget bill to close these loopholes in order to save money and slightly reduce the
long-range actuarial deficit faced by the Social Security trust funds.
What if you’re already using one of these strategies?
If you are already using the file-and-suspend or the restricted application strategy,
you will not be affected by the new rules. You have already met the age requirements.
How are benefits for surviving spouses affected?
Rules affecting surviving spouses have not changed. If you are eligible for both a
survivor benefit and a retirement benefit based on your own earnings record, you
can still opt to receive one benefit first, then switch to the other higher benefit later.
What planning opportunities still exist?
Even if you can no longer take advantage of the file-and-suspend and restricted
application strategies, you may stiU benefit from considering your Social Security
filing options. The age when you begin receiving Social Security benefits can
significantly affect your retirement income and income that is available to your
survivors.
Basic options for claiming Social Security remain unchanged. Currently, the
earliest age at which you can receive Social Security retirement benefits is 62, but if
you choose to take benefits before your full retirement age (66 to 67, depending on
the year you were born), your benefit will be permanently reduced by as much as
30%. On the other hand, if you delay receiving Social Security benefits past your full
retirement age, you’ll receive delayed retirement credits, which will increase your
benefit by 8% for each year you delay, up to age 70.
Determining when to file for Social Security benefits is one of the biggest
financial decisions you’ll need to make as you approach retirement. There’s no
“one-size-fits-all” answer—it is an individual decision that must be based on many
factors, including other sources of retirement income, whether you plan to continue
working, how many years you expect to spend in retirement, and your income tax
situation. It is especially comphcated when you are married, because you and your
spouse will need to plan together, taking into account the Social Security benefits
you each may be entitled to, including survivor benefits.
Although some claiming options are going away, plenty of planning opportunities
remain, and you may benefit from taking the time to make an informed decision
about when to file for Social Security.
Copyright 2016 by Commonwealth Financial Network. This material has been
provided for general informational purposes only by Greg Patterson of Atlantic Wealth
Management in Morehead City, North Carolina, and does not constitute either tax or
legal advice. You should consult a tax preparer, professional tax advisor or attorney
before making investment decisions. Mr. Patterson can be reached at 515-7800 or
greg@myatlanticwealth.com, and is a Registered Representative of Commonwealth
Financial Network, Member FINRA/SIPC.
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