Many of you have likely heard or read about the seemingly sudden new legislation that has closed the door on some popular Social Security claiming strategies. Congress described the changes to Social Security as "closing unintended loopholes" in order to protect the solvency of the overall Social Security system. Needless to say this surprise may cause some people to be disappointed and others to be relieved. Do keep in mind, this article seeks to simplify a very complex topic, be sure to explore your options thoroughly.
Those who will not be impacted by this legislation are people age 70 or older, or those who will be in 2016. Anyone 66 or over, and not yet 70, should reevaluate current claiming strategies before April 30, 2016. The new law will remove a small number of claiming strategies that could have resulted in cumulatively higher benefits for some people under the old law.
- Filing a restricted application - Under the old law, individuals who had reached full retirement age were given an option to apply for one benefit, and retain the ability to switch to another at a later date. For example, it was possible to claim only a benefit based on your spouse's earnings, and later claim a retirement benefit based on your own earnings. Under the new law, you can't restrict your application to the benefit you want; instead, you must take the highest available benefit. The new rules apply to people who are not 62 by the end of 2015. Individuals 62 and over are "grandfathered" and can still use the old rules when they reach full retirement age.
- File and suspend - You can still file for benefits, suspend taking them, and earn delayed retirement credits to get a higher benefit later. But under the new law, your spouse will be unable to collect benefits based on your earnings record, while suspending your own benefit. There is a very short window of opportunity - if you have reached full retirement age or will reach it by April 30, 2016, then you can still take advantage of the "old" rules by filing and suspending your benefits - but you must do so by April 3, 2016.
- Lump-sum reinstatement - Under the "old" rules, people who chose to file and suspend could later change their mind and retroactively recover the unpaid amounts during suspension. This is no longer possible under the new rules. You can retain your ability to retroactively recover benefits but you must reach full retirement age, file for benefits, and suspend them by April 30, 2016.
What should you do now?
If you filed a restricted application, or chose to file and suspend, before the new law was enacted, you can continue to enjoy the benefits of those claiming strategies under the "old" rules. Even if you are already receiving benefits, you have an opportunity to re-evaluate whether suspension could benefit you.
The recent budget compromise may have shut the door on some popular claiming strategies, but many other planning opportunities still exist. Consider consulting with a Social Security expert. Knowing your options and correctly claiming benefits could result in tens of thousands of additional dollars over a lifetime. Our firm has access to robust software that can help analyze many of the Social Security benefit scenarios available.
You might feel appropriate arriving "fashionably late" to a party, but arrive early to this one - the Social Security Administration is a stickler for punctuality. Being locked out could have significant implications to your retirement lifestyle.
Caroline Hill, Financial Advisor
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).