Just when you think it’s safe to firm up your retirement plans, the Social Security benefit rules change. You may need to rethink your strategy and timing.
In an article on the future of Social Security, we quoted baseball legend Yogi Berra as saying, “It ain’t over till it’s over.” That generally still holds, but a recently passed budget bill means that it ain’t over for two popular spousal benefit strategies, but it’s close.
With the enactment of the Bipartisan Budget Act of 2015 (H.R. 1314), the file and suspend and claim now, claim more later strategies are being closed. File and suspend will be banned starting on April 30, 2016. A ban on claim now, claim more later will apply to anyone who turns 62 in 2016 or later.
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The end of file and suspend
The file and suspend strategy allows a person to apply for his or her own retirement benefits at the full retirement age of 66, then immediately suspend the benefit without ever receiving a benefit check. Doing this makes it possible for his or her partner to begin receiving spousal benefits, while leaving his or her own retirement benefit unaffected and growing until as late as age 70.
Act before April 30, 2016
If you are eligible for this strategy (over full retirement age of 66 and want your spouse to receive a spousal benefit while your own benefit grows to age 70), you must implement the strategy prior to April 30, 2016. For example, a couple age 66 and 64 previously would simply wait for the younger spouse to reach the full retirement age of 66 for the older spouse to initiate file and suspend; now the older spouse must act soon to secure the voluntary suspension.
While a voluntary suspension of benefits will still be allowed after the April deadline, no spousal benefit will be paid based on a suspended benefit. Fortunately, the new legislation does not apply retroactively to those who have already initiated file and suspend; their payment amounts and schedules will remain unchanged.
Aging out of claim now, claim more later
The claim now, claim more later strategy allows an individual to restrict his or her own larger retirement benefit and take a lesser spousal benefit while waiting to claim a maximized benefit at age 70. It grows unaffected by any spousal benefits already received.
Under the new law, only those who reach age 62 or older in 2015 will be grandfathered in and be able to file a restricted application for spousal benefits at full retirement age.
How we can help
The next six months mark an important transition period for those affected by these Social Security changes. The new restrictions are a good reason to take a close look at all Social Security claiming strategies; the window where all will remain available is closing. Couples and individuals may learn that what was once only their third or fourth best claiming strategy has now become the best and most accessible.
Contact your advisor to help analyze all of your retirement needs and associated risks.