Since the passage of the Senior Citizens Freedom to Work Act of 2000, social security beneficiaries were allowed to employ the “File and Suspend” and “Restricted Application” strategies, either exclusively or in conjunction, to attempt to maximize their social security benefits. The Bipartisan Budget Act of 2015 contained changes to the Social Security program that eliminated these claiming strategies.
Any individuals who have not reached age 66 by May 1, 2016 will not be able to employ the “File and Suspend” claiming strategy. If you are at your full retirement age or will reach age 66 by May 1, 2016, you can file and suspend if the election is made by May 1, 2016.
Any individuals who do not reach age 62 by December 31, 2015 will not be able to file a “Restricted Application”.
These changes do not impact individuals who have already filed and suspended or filed a restricted application. Also, individuals will still have the ability to file and suspend if they want to accrue delayed retirement credits, but the suspension of their benefits will also suspend any spousal benefits.
How will these changes impact me?
The elimination of these claiming strategies may reduce your total benefits if you had planned on employing one or both of these strategies.
Social Security beneficiaries are entitled to the greater of their own benefit or 50% of their spouse’s benefit. The “File and Suspend” strategy allowed one spouse, usually the higher earner, to file for benefits and immediately suspend their benefit. Filing and suspending accomplished two objectives: filing allowed their spouse to begin collecting a spousal benefit and suspending their benefit allowed them to accrue delayed retirement credits. With the elimination of this option, if a beneficiary suspends their benefit then all benefits being claimed on their record will be suspended.
A restricted application allowed a beneficiary who had reached full retirement age to collect a spousal benefit while delaying their own benefit and accruing delayed retirement credits.
What should you do now to address these changes?
If you are at full retirement age or will reach age 66 by May 1, 2016, you should consider filing and suspending by the deadline of May1, 2016.
If you have already incorporated the “File and Suspend” and/or the “Restricted Application” strategy into your Financial Plan and you will not be able to employ these strategies. The social security benefits you planned on receiving could be less. Therefore, you should revisit your Financial Plan to determine the optimal claiming strategy available for you in light of these changes.
Do these changes simplify social security planning?
These changes simplify the social security planning process, but the decision of when to claim benefits may still have an impact on your ability to meet your goals and objectives.
RubinBrown’s Wealth Management Group can help you with this decision as part of our financial planning suite of services.
Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.
All Wealth Management News Wealth Management Services