As a result of the Bipartisan Budget Act of 2015 that was signed into law on November 2, 2015 our choices for Social Security benefits are being reduced.
In case you are having trouble sleeping and would like to look up the section of the Budget that we are referring to in this blog.
This blog is designed to give a heads-up for those that may want to schedule a planning appointment with a member of the Cook Martin Poulson team or your financial advisor to look at your individual situation and how this may impact you or someone that you care about.
What are the 2015 Social Security Changes?
Section 831(a) impacts “restricted applications.” A restricted application is when an individual eligible for spousal benefits could elect to receive the spousal benefit while allowing his or her own retirement benefit to grow, then switching his/her worker benefit once it is maximized. Under the new law whenever an individual files for social security benefits he/she is claiming all benefits he/she is eligible for, with no opportunity for delayed retirement credits post-filing. This is termed a deemed filing.
Section 831(b) impacts “voluntary suspensions.” A voluntary suspension is where an individual could file for benefits, then suspend receipt of benefits, allowing his/her benefits to grow while a spouse could claim benefits based on his or her work record. The new law causes a voluntary suspension to stop all benefits payable under the earnings record of the person whose benefit was suspended. In other words, the spouse will no longer be able to collect a spousal benefit during the time in which the wage earner’s benefit is suspended.
The changes and their impact will be dependent on Dates of Birth as follows:
- Anyone that has already executed a restricted application or voluntary suspension is grandfathered in and should not be impacted by this legislation.
- Born May 1, 1950 or earlier: The “file and suspend” strategy is available as long as voluntary suspension occurs and is executed on or before April 29, 2016.
- Born on or before January 1, 1954: Restricted application is available after the individual reaches full retirement age. This creates the opportunity for one member of a couple to claim a spousal benefit and grow his/her own benefit, potentially capturing more in social security benefits.
- Born on January 2, 1954 or after: The “file and suspend” and restricted applications strategies are no longer available.
As you can see this new law will make the “File and Suspend” strategy, which combines the restricted application and the voluntary suspension, have limited availability to some and no availability for the rest of us.
These strategies have, in the past, created opportunities for retirees to maximize the value of their own retirement benefits, while generating Social Security cash flow earlier on in retirement.
While this should have the impact of extending the viability of the Social Security system on a National level, on an individual basis it may negatively impact individual claimants of Social Security benefits and what strategies are available.
Contact a CPA at Cook Martin Poulson for more information.