With little fanfare or reporting, the budget deal Congress made the end of October has some major implications for seniors and retirement savers. Signed into law on November 2, 2015 by President Obama, the new budget bill impacts two major social security strategies, known as “file and suspend” and “restricted application“, are being curtailed or killed as part of the two-year budget legislation.
Under the current file-and-suspend strategy, someone who reaches full retirement age (as defined by Social Security) can file for social security benefits then immediately suspend it. The brief application then allows one’s spouse to file for spousal benefits while letting the original applicant’s own retirement benefits grow by eight percent annually, leaving the couple with a higher benefit payout in the long run.
With the signing of the new bill, filers who are at least 62 years old only have up to May 1 of next year to apply for this benefit, as this option will be phased out soon.
“[Under the new law,] no one will be able to voluntarily ‘file and suspend’ benefits (to trigger) a spousal benefit for a spouse; or (to protect) the right to file for retroactive benefits,” said Jamie Hopkins of the American College of Financial Services regarding the new provision in the law.
Restricted application will be lifted. Current law states that individuals who can apply for both spousal and retirement benefits have the option to pick which one they prefer. To maximize the benefits they can receive, some couples or divorcees who are eligible but not yet at maximum retiring age would file for spousal benefits while letting their retirement benefits grow for a bigger payout later on.
Of course, this will also change with the new bill.
“Under the new law, however, only those born Jan. 1, 1954, or earlier can use this option,” Robert Powell explained in his article for US Today. “Anyone younger will just automatically get the larger of the two benefits.”
If you’re old enough to be grandfathered in, the key retirement planning point here is to actually consider whether either of these strategies, or both, could help you boost your lifetime Social Security benefits. Seniors often feel they need to claim benefits right away, but if you can work longer or dip into savings in order to delay, these strategies can boost your lifetime Social Security haul, provided you don’t die relatively young.
For those taking advantage of these types of strategies, the takeaway can be significant according to William Meyer and William Reichenstein, principals of Social Security Solutions, a company that guides people to maximize their benefits. In one example, they found that someone born in 1954 instead of 1953 would lose $62,400 in lifetime benefits due to the changes.
While the law will mostly come into effect in April 2016, it is important to be aware of the changes and to know one’s eligibility for benefit options. Financial experts advise waiting for benefits to reach their maximum potential before claiming them. Senior citizens should also know if they are still eligible for the claiming strategies mentioned and consequently file for them as soon possible to get more out of their social security benefits.
As always, it is best to contact your financial advisor to understand the full impact on your personal situation and develop the best strategy for moving forward.
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