Much like Texas weather, the federal government’s retirement rules can change anytime. Some changes this month could have a big impact on certain retired people or those nearing retirement age.
A cottage advisory industry sprang up in recent years to help Baby Boomers maximize their Social Security benefits. Many advocated strategies like “file & suspend” that exploit the retirement program’s complex rules to collect higher benefits.
Those who used the loopholes weren’t doing anything wrong, but the Social Security Administration still took a dim view. Only Congressional action could close off these strategies, and no such action was forthcoming… until now.
President Obama signed the Bipartisan Budget Act of 2015 on November 2. This headed off a fight over government spending and the debt ceiling as we head into next year’s elections, but it paid for new spending with tweaks to existing programs – like Social Security.
If you aren’t currently in your 60s, none of this applies to you. You are either too young or too old to make the decisions in question. It might affect your relatives or friends, though, so be sure to let them know. Here is a quick summary of the changes.
File and Suspend
• Currently: A filer who is at or past Full Retirement Age (FRA), can file for individual benefits, but suspend receiving them and allow a spouse or dependent to collect off of their record.
• Through April 30, 2016: Anyone 66 or older can still file and suspend to allow an eligible spouse or dependent to collect a benefit off their record under the old rules.
• After April 30, 2016: “File and suspend” will no longer enable a spouse or dependent to collect benefits off of the filer’s record, unless the filer takes a benefit. For a spouse or dependent to collect a benefit, filers must collect their own benefit and forgo delayed retirement credits. If an individual suspends benefits, all spousal and dependent benefits will be suspended.
Restricted Application for Spousal Benefits
• Currently: A spouse who is at or past FRA, and who has not received any benefits, can choose a spousal benefit only (referred to as a Restricted Application) or his or her own individual benefit.
• Anyone 62+ by the end of 2015: Is grandfathered and retains the ability to restrict their claim to spousal benefits only if they wait to collect until they reach their FRA.
• After year-end 2015: Individuals who are younger than 62 will not have the choice of which benefit they collect when they reach FRA. Regardless of their age, they will be “deemed” to have filed for the highest benefit. They will no longer have the option to restrict their benefit to their spousal benefit only.
Lump Sum Voluntary Reinstatement of Benefits
• Currently: An individual who files and suspends can request that all suspended payments be paid in a single lump sum.
• Through April 30, 2016: Individuals who will be at least age 66, and want to utilize this strategy, will need to file and suspend benefits.
• Individuals who file and suspend benefits after April 30, 2016 will no longer be able to request a lump sum payment of all suspended benefits.
Social Security is an important retirement income source for many Americans, but the law’s creators never intended it to be the only source. They wished only to provide basic income for those too old to work. Those with successful careers who planned for retirement shouldn’t need to bend the rules. For them, these changes are of no consequence.
Retirement income planning is an important part of the broader financial plans we develop for all Republic Wealth clients. We can review your situation and make sure you are on track to meet your goals at any time. Feel free to call on us.
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