Wow! Things are changing fast! The Bipartisan Budget Act of 2015 is poised to deliver a tremendous reform to Social Security claiming strategies.
For the past several years an entire industry has sprung up around Social Security claiming strategies. The big financial services firms recognized that there was a tsunami of retirees that needed help with Social Security and they invested millions of dollars into software development. Most of these software outputs were all aimed at “maximization strategies.” The goal was to use claiming strategies to get the highest amount of lifetime benefits available.
Now it looks like the party is over.
Under the “Social Security Benefit Protection and Opportunity Enhancement Act of 2015,” popular claiming strategies such as “File and Suspend” and “Restricting the Scope of Application” may be gone for good.
Here is the language from the summary of the Act.
Protecting Social Security Benefits Sec. 831. Closure of unintended loopholes
Closes several loopholes in Social Security’s rules about deemed filing, dual entitlement, and benefit suspension in order to prevent individuals from obtaining larger benefits than Congress intended. (Effective for individuals who attain age 62 after 2015, with respect to dual entitlement and deemed filing; and effective for benefits payable beginning 6 months after enactment, with respect to benefit suspension.)
Here are the pertinent points to know.
File and Suspend/Restricted Application Strategy
One spouse will no longer be able to file and suspend benefits while the other spouse restricts his/her application to spousal benefits only. In the past, this was a very popular strategy which would allow one spouse to collect a benefit while they were also increasing their benefit by the 8% annual delayed retirement credits.
Under the new rule, if one spouse files and suspends his benefit, it will not only suspend his benefit but any auxiliary benefits such as dependent or spousal benefits as well. File and Suspend will still exist, but without the restricted application, its usefulness will be very limited.
One of the interesting components of this rule is how it will be both gradually, and very abruptly, rolled out.
Those who turn 62 in 2015 will still be able to use the restricted application. If your 62nd birthday is after January 1, 2016, it will not be an option for you. This means that by 2020, it will not be an option for anyone.
The file and suspend strategy is different. It could have a dramatic impact on current retirees. The new rule eliminating spousal benefits on a suspended record will begin to apply just 6 months after the legislation is final.
For example, lets assume that a spouse files and suspends his benefits. His wife files an application for spousal benefits. Once the new rule takes effect, the spousal benefits would stop until the suspended benefit (his) is resumed.
The Obama administration has been outspoken with their belief that it’s only rich people who are using these strategies. I don’t think that’s true. It’s not the wealthy who need these strategies the most. It’s the middle class folks who have worked hard, raised their kids and saved all they could. Most of these people don’t have the luxury of a pension and they are finding out that their retirement dollars don’t provide the retirement cash flow that they hoped for.
For many, using these filing strategies is the difference between having enough income, or spending their “golden” years scraping by.
The House could vote as soon as Oct. 29, and the Senate cloture vote could come as early as Oct. 30. I’m going to let them know what I think about these Social Security changes. You can too by clicking HERE.