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Changes to Social Security?

https://www.flickr.com/photos/keoni101/

Provided by Keith Klein

The “Bipartisan Budget Act of 2015” which was signed into law in November of this year dramatically changes Social Security planning. Section 831 of the law, titled  “Closure of Unintended Loopholes,” impacted two powerful claiming strategies called “File and Suspend” and “Restricted Application.”

 

Changes to "File and Suspend"

The new law stipulates that if a person voluntarily suspends benefits, no one can receive benefits based on his or her suspended record. 

What does this mean?

Under the current law, a filer who is at or past Full Retirement Age can suspend his or her benefits, but allow a spouse to continue to receive a spousal benefit. By suspending, the filer’s personal benefits would increase by 8% for each year the benefits are deferred. This strategy could increase monthly benefits by up to 32%. Under the new law, a person can suspend his or her benefits, but spouses and children will now be prohibited from receiving benefits from that suspended account.

Who does this change affect?

Those who are eligible but have not taken advantage of “File and Suspend” will only have until April 30, 2016 to do so in order for a spouse or child to receive a benefit. Those who have already “Filed and Suspended” their benefits will not be impacted. Those who reach their Full Retirement Age after April 30, 2016 will not be able to take advantage of this strategy. 

Changes to "Restricted Application"

The law also expands the Deemed Application rule. The Deemed Application rule provides that, when a person is eligible for both a benefit from his or her own record and a benefit from their spouse’s record, he or she is deemed to have filed for both. Prior to the passing of the law, the Deemed Application rule applied only to those who filed for early benefits. After the passing of the law, it applies to all, including those who file for benefits at or after their Full Retirement Age. 

What does this mean?

The change eliminates a powerful strategy whereby a person who has reached their Full Retirement Age could file a “Restricted Application” for just spousal benefits, while deferring his or her personal benefit for a bigger payout later. While the filer can still defer his or her personal benefits, the new rule will not allow the filer to receive spousal benefits in the meantime.

Who does this change affect?

The new rule applies to anyone who reaches age 62 after December 31, 2015. Thus, the ability to leverage “Restricted Application” is alive and well for anyone who reaches age 62 prior to January 1, 2016.

In Summary

  • If you are under age 62: These changes reduce the overall value proposition of Social Security for the younger generation. Those who will be under the age of 62 as of December 31, 2015 will not be able to use “Restricted Application” or “File and Suspend” as Social Security maximization strategies. If you fall into this category, you should realize that Social Security will likely comprise a smaller portion of your income in retirement and you should plan accordingly. 
  • If you are 62 or older: Those who will reach age 62 prior to 2016 will have “Restricted Application” available to them. 
  • If you are 66 or older: Those 66 or older, or who turn 66 before April 30, 2016, can leverage the full power of  “File and Suspend” and “Restricted Application.” However, if you do not take advantage of “File and Suspend” by April 30, 2016, you will forever lose the opportunity.

Investment Advisory Services Offered Through CUE Financial Group, Inc. a SEC Registered Investment Advisor.  Securities Offered Through Foothill Securities Inc., Member FINRA & SIPC.  Foothill Securities, CUE Financial and Turning Pointe Wealth Management are not affiliated.

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