If you were looking to retire in 2016, the new omnibus bill and other legislation that just passed in the last couple months may throw a wrench into your retirement funding plans. You may need to adjust your filing strategies accordingly to the rule changes as outlined below.
Suspending your Benefits
The first and possibly the largest change to Social Security filing strategies is that you can no longer suspend your benefits when you apply for them. The “File and Suspend” strategy would allow those seeking retirement to file and then immediately suspend their benefits, for those 66 and over. During the suspension, delay credits would accumulate giving you a larger benefit when you finally did start to collect your Social Security.
With the update repealing this strategy many retirees will need to rethink their retirement funding strategies. If you had a 401K or other pension fund that was going to be used upon retirement, until it ran out and then rely on the increased Social Security amount from the suspension, this is no longer possible. This essentially eliminates potentially hundreds of thousands of dollars for a couple over their lifetime. This strategy is currently set to end 1st May 2016. If you are 66 years or older prior to April 30, 2015, it is wise to ‘file and suspend’ as soon as possible to keep these options open.
This strategy affects most couples that were depending on this strategy for retirement. While the suspended benefits were accruing credits to the tune of 8% per year during suspension, spouses were also able to claim a benefit based on this reduced earnings record. The new law states that you need to be actually receiving the benefit in order for spouses to receive the benefit as well.
Restricted Application changes
The other strategy in use was called a “restricted application.” With this strategy you would apply to receive only your spousal benefit from Social Security allowing your own benefit to accrue credits as described above allowing half of a family to accrue an extra 8% a year in additional Social Security benefits. This was allowed up to as late as 70 years old significantly increasing benefits when they were actually taken at a later time.
This option will no longer be available to couples as of 1 January 2015. However if you are 62 or older by the end of 2015, this option will remain open to you. If so, it would be wise to explore your options with a financial advisor about which option would better suit your family. All those currently exercising these options will continue to be ‘grandfathered’ into the system allowing these strategies to continue for them.
Younger than 62 years old
If you are younger than 62 years old and are looking to retire in the next few years, you may have some tough choices. With the “file and suspend” option being removed it is a $9.5 Billion annual benefit being removed from retirees living allowances. If you were planning on using your share of these ‘extra’ benefits, you will need to recalculate your retirement income, needs and potentially even your retirement date.
These measures were targeted by the administration to put a stop to higher-income families from taking advantage of the loop-hole.
