Will The Changes To Social Security Impact Your Retirement Plans?
As part of the Bipartisan Budget Act 2015, Congress made some significant changes to how you are allowed to claim your Social Security. These changes could have a drastic impact on the retirement strategies of many Americans by eliminating some popular filing strategies that have been used by recipients for years to increase their benefits. The law eliminates the File & Suspend and Restricted Application provisions. Let’s take a look at these provisions and the consequences it could have on your retirement.
What is File-and-Suspend?
File-and-Suspend is a provision in Social Security that was introduced in the year 2000. It allows a person who has reached full retirement age (typically age 66) to file for Social Security, and immediately suspend their benefits. That is a great strategy if someone wants 2 things to happen:
- Wait until age 70 to start drawing Social Security – their monthly check will be 32% higher at age 70 than age 66 because of Delayed Retirement Credits.
- Allow their lower-earning spouse to file for Spousal Benefits. An example of this might be a fictitious couple named Ted and Alice. In this example Ted’s benefit at 66 would be $2,000 per month and Alice’s benefit at 66 would be $600/month on her own earnings record. If Ted filed at 66 to get his benefits of $2,000, then Alice could also file and she would actually get $1,000/month (1/2 of what Ted gets) because of the Spousal Benefits provision. But, if Ted does not file at age 66 because he wants to wait until age 70, then Alice can only get $600 month because she cannot get Spousal Benefits until he files. The File-and-Suspend provision allows him to file for Social Security at age 66, and immediately suspend his benefits – his benefits continue to grow because of the Delayed Retirement Credits, and she can now file and will receive the Spousal Benefits.
What is a Restricted Application?
A Restricted Application is one that restricts the scope of the application to one benefit. It can only be done at full retirement age, and it is used to restrict the application to claim the person’s Spousal Benefits only. That allows their own personal benefits to continue growing by the Delayed Retirement Credits until age 70; then they can switch from Spousal Benefits to their higher personal benefits.
As you can see, the elimination of these provisions could have a major influence on your retirement plans! Since the new law will not go into effect until May 2016, it may still be possible to take advantage of some of these provisions! Individuals that have already filed and suspended or are currently drawing their benefits in this manner will continue to receive the benefits. The important thing is to contact your financial advisor immediately to see what is the best decision for you! Contact the advisors at Sound Financial today and let us help you navigate this important retirement decision!
Investment advisory services offered through Sound Financial Strategies Group, Inc.("SFSG"), a Registered Investment Adviser. Securities offered through Comprehensive Asset Management and Servicing, Inc., ("CAMAS") Member FINRA/SIPC. SFSG and CAMAS are separate and unrelated companies. The opinions voiced in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by CAMAS.
Posted on Tue, December 1, 2015
by Sound Financial Strategies Group