Just when you think it can’t possibly get more complicated, enter the Federal Bipartisan Budget Act of 2015. While there has never been—and probably never will be—a one-size-fits-all solution to Social Security filing, this new bill brings significant change. It will make the two most common filing strategies for couples, Restricted Application and File and Suspend, things of the past. So, if your birth year is 1953 or earlier, pay close attention to the following information as you have a very short window to act.
Strategies to be eliminated
Restricted Application. This spousal strategy allows one spouse at Full Retirement Age (FRA is currently age 66-plus if birth year is 1943-1954) to apply for a benefit based on the spouse’s record while delaying their own benefit. This allows the larger benefit to grow an average of 8 percent per year until age 70. Couples who want some income now while waiting for the higher earner’s benefits to grow can benefit from this strategy.
File and Suspend. This strategy allows a couple to claim benefits at FRA but suspend payments based on their record until a later age. Meanwhile the spouse can begin receiving benefits based on the primary filer’s record. The primary can continue to accrue delayed retirement credits until age 70.
How does this affect me
No impact if you are currently receiving Social Security benefits or widowed and remain unmarried.
Pay close attention if you are NOT receiving benefits, are 62 or older, or turn 66 by April 29, 2016 and are married or divorced. Note: Divorcees who were married 10 years or more will only be able to claim a spousal benefit at age 66 if they were 62 by Dec. 31, 2015.
What should I do now?
Age 66 or older and not yet collecting benefits. Consider the File and Suspend strategy by April 29, 2016 if either of these two reasons for doing so makes sense for you:
You want to allow a spouse/dependent to collect benefits based on the primary filer’s record while the primary’s benefits continue to grow.
You want to preserve the primary’s option to request a lump sum payment of retroactive suspended benefits.
Age 62 or older by end of 2015, married to eligible spouse who is 66 or older and not collecting benefits. Consider the Restricted Application strategy if either of these two reasons for doing so makes sense for you:
You want to collect a spousal benefit while growing your own benefits.
You want to maximize the survivor’s benefit by having the higher earning spouse file the Restricted Application.
Born after 1953. Although the Restricted Application and File and Suspend options are no longer available to you, it’s never too early to begin planning for retirement. For most, Social Security remains a key component for future income. Consider this:
- Filing prior to your FRA will reduce your benefit while delaying benefits beyond your FRA will increase your benefits. At least this part of Social Security has not changed. For every year you delay taking benefits between age 62 and 70, they will grow an average of 8 percent. In today’s investment environment, that’s a very attractive return. It may even make sense to temporarily tap into other retirement income to allow your Social Security benefits to grow.
- Maximizing your survivor benefit to protect your spouse is another reason to consider delaying your benefit until age 70. To do this, you need to be sure to plan for income replacement until age 70.
- Visit MySAA.com to obtain your current statement. Consider using the Social Security calculator (www.SSA.gov) to help you determine the best strategy for your situation. This might also be a good time to meet with your trusted financial adviser to review strategies for your long-term income replacement needs.
Significant changes like this one to Social Security present a great opportunity to step back and review your overall financial plan regardless of your age. There are many important nuances to this budget bill. Don’t let the apparent complexities of retirement planning—and specifically Social Security-related considerations—keep you from taking action. Being proactive rather than reactive allows you to make the wisest decisions possible for you and your family.
— by Janice Thompson
Thompson is a certified financial planner, and co-founder and CEO of One Degree Advisors, Inc. She speaks on financial topics and is a mentor for financial professionals, she also serves on the board of directors for Kingdom Advisors. Learn more at onedegreeadvisors.com. Advisory services offered through One Degree Advisors, Inc. Securities offered through Securities America, Inc., Member FINRA/SIPC. One Degree Advisors and Securities America are separate companies.