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Social security is a confusing and complicated subject that appears very simple on the outside. You can go online and collect your benefits as soon as you are eligible and that is exactly what most people do. In 2014 91% of people who claimed Social Security took it at Full retirement age (FRA) or before. Only 9% let it grow between FRA and age 70. Some even begin the income stream at age 62 while they are still working! Making those elections can be financial game changers. To make matters more complicated, the budget deal signed into legislation last week brought more changes that could impact your retirement.
“Well you might say the cat is out of the bag which is what often happens when loophole strategies that are perfectly legal but not necessarily the intent of the program are being utilized,” remarked Dean Huddleston, financial advisor with The Financial Enhancement Group and the firm’s social security specialist.
In 2000, the Senior Citizens’ Freedom to Work Act created one such loophole. Under this act, a spouse could effectively suspend their benefit at FRA (Full Retirement Age) and allow their spouse to claim a benefit of up to half of the suspended benefit while still allowing their own benefit to grow up to age 70.
When used in conjunction with a carefully considered financial plan, this approach allowed an earlier stream of cash flow into budgets while allowing both spouses’ Social Security benefits to grow. The benefits over a four year period could have exceeded $50,000. The impact of this benefit has been estimated to cost the U.S. trust fund around $9 billion dollars annually. While the New York Times reported these strategies were rarely used, the approach has certainly impacted many of the families we serve.
So last week Congress passed a revision of the law that phases out the ability for a client to file-and-suspend, while still allowing other eligible family members to claim a benefit based on that client’s earnings history. Under last week’s legislation, the file-and-suspend strategy will be eliminated 180 days after the signing of the bill into law and by May 2016, the strategy will no longer be available to individuals who are not already using it. (Note the client must be full retirement age (FRA) or older in order to voluntarily suspend their benefit).The ability for a client to file a restricted application (at FRA or later) to claim only spousal benefits – allowing their own benefit to continue to grow with delayed credits – will be eliminated for clients turning 62 on January 2, 2016.
If you have already filed and suspended and another family member is receiving benefits on your earnings record, those benefits will not be stopped after the 180 day period following the bill’s signing. Although the original budget bill would have eliminated benefits for some individuals already receiving them, a retroactive amendment to the bill resolved that issue by grandfathering anyone who suspends their benefit by the end of the 180 day window into the old rules.
Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column offset=”vc_hidden-lg vc_hidden-md vc_hidden-sm”][vc_widget_sidebar sidebar_id=”sidebar-main”][/vc_column][/vc_row]