New Budget Law: How Could It Impact Your Social Security Benefits?
If you are like most Americans, your largest asset in retirement is your social security benefits. Unfortunately, without some big changes, the Social Security Trust Fund is slated to run out of money in 2034. While I am (cautiously) hopeful that this country will make the reforms necessary to keep this from happening a more immediate change – the elimination of certain claiming options – is looming.
The new budget deal recently signed into law by President Obama would eliminate two very popular claiming strategies. The “file and suspend” strategy would be phased out May 1st, 2016. Meanwhile, the “restricted application” strategy would impact those turning 62 after 2015. How do these strategies currently work?
Let’s say Bill and Mary are married and both 66 years old. Bill can file for benefits and then immediately suspend those benefits until a later date. By doing so, Mary can start to draw benefits under Bill’s work record while allowing Bill’s benefits to grow until he receives his maximum benefits at age 70. When Bill turns 66 and files and suspends, Mary can file a Restricted Application to only receive spousal benefits instead of her own retirement benefits. This would allow her to receive fifty percent of Bill’s benefits and grow her own retirement benefits until she, too, receives her maximum benefits at age 70.
Adults and children who are already collecting benefits on a spouse or parent need not worry as this bill does not affect them. If an individual files and suspends by May 1st, 2016, they will be grandfathered in with respect to providing ancillary benefits. However, if a person turns 62 after 2015, they can no longer file a restricted application for spousal benefits. If they file for benefits at full retirement age, they will receive the higher of their retirement benefits and spousal benefits. If they file at full retirement age, their benefits will not be able to grow until collecting maximum benefits at age 70.
As a financial advisor, I can only give client-specific advice. However, those who are over 66 or turning 66 by May 1st, 2016 and have not filed for benefits, should consider themselves lucky. They are the last ones to have options! It may be a good idea to file and suspend while they still can so that their children and/or spouse can receive full benefits. Talk to your financial advisor to see if it is the right decision for you.
Added 11/04/2015 by Jason Siperstein, CFA, CFP®