Social Security Changes

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February 12, 2016
Social Security Changes

The Bipartisan Budget Act of 2015 was signed into law November 2, 2015. All the common Social Security filing strategies most people are familiar with will no longer be allowed after April 30th of this year. People who have reached the full retirement age of 66 have until April 30th to choose some options which will no longer be available May 1st.

It’s important for those of you who are within the age range of collecting benefits to be aware of the changes before you make irreversible decisions. And it can’t hurt for those of you with parents in this age range to make yourself aware for their sakes. So let’s take a look at the changes…

File and Suspend

  • Before April 30th the rules allow a filer for Social Security who 66 or older to file for their own benefits but suspend actually receiving the payments and allow a spouse or dependent to collect off of the filer’s record or benefits.
  • In order for the spouse or dependent to collect a benefit on their spouse’s record the spouse must also be receiving their payments.
  • If you are or will be 66 before the first of May and do not file and suspend the option will no longer be available.

There is no disadvantage to filing and suspending a benefit. Doing so allows you to put a stake in the ground, claiming the right to something you may want to do later. After you put your stake down you have no obligation to do anything—you have just preserved the option to act.

Restricted Application for Spousal Benefits (Keep in mind this is not an option, it’s just the way it is.)

  • Currently, a spouse who is 66 or older can choose to receive either a spousal benefit (called a Restricted Benefit) or his or her own benefit.
  • Currently anyone who was 62 or older by the end of 2015 is grandfathered and is still allowed to retain the option to choose or restrict the claim to spousal benefits only—not your own, until you reach age 66.
  • The new law will not give you that choice. If you will be 62 after 2015 you cannot choose which benefit you will collect when you reach age 66.
  • You will no longer have the option to restrict your benefit to that only of your spouse you will have been “deemed to have filed for the highest benefit.”
  • In order to file a “Restricted Application” for spousal benefits only, the other spouse may have already filed or suspended or be currently taking benefits and you must have turned 62 before January 1st, 2016.

Lump Sum Voluntary Reinstatement of Benefits

  • Before the law changes, a person who Filed and Suspended their benefit payments could request that all suspended payment be paid in a lump sum. (I like this option a lot!)
  • Everyone who is 66, or will be by April 30th will lose the option of taking suspended payments in a lump sum.
  • Even if you do not plan to collect benefits until later, if you File and Suspend before May 1st the lump sum option will be available to you.
  • This option is available to married couples as well as single individuals.
  • By suspending your Social Security benefits you will earn 8% annually on the payments you are not receiving.
  • The opportunity to receive a lump sum of money at a future date, which has earned 8% annually, would certainly be a nice nest egg!