Bipartisan Budget Act of 2015: Two Social Security Planning Tools On Their Way Out– November 13, 2015

As part of the Bipartisan Budget Act of 2015, two key financial planning strategies related to Social Security that allow couples to boost their lifetime benefits by tens of thousands of dollars have been eliminated.

Restricted Applications
Then
Before the Budget Act, once you reached normal retirement age (which varies slightly depending on the year in which you were born), you could restrict your application for Social Security benefits to exclude certain benefits. If a benefit was excluded, it continued to build delayed retirement credits.

For example, a higher-earning spouse, who wanted to wait until age 70 to collect her own benefit, could file at 66 for only the benefit available under her spouse’s work record, while still allowing her own benefit to build delayed retirement credits. At age 70, she would switch to her own benefit. Alternatively, a lower-earning spouse could restrict his application to only spousal benefits while continuing to claim delayed credits on his own earnings record.

Now
It is no longer possible to file an application to receive just a spousal benefit.Filing any application is deemed to be a filing of all benefits, meaning you will use the benefit earned on your own work record first.

File and Suspend
Then
Before the Budget Act, you could file for benefits (which is a requirement to allow a spouse to claim a “spousal” benefit) but then immediately suspend/delay receiving your benefit. This would allow your spouse to receive the spousal benefit while you continue to earn delayed retirement credit on your own benefit (delaying past full Social Security retirement age allows the benefit to increase annually at 8%).

Now
The new legislation will cause all benefits received on your work record to be suspended, not just the benefit you want delayed.Meaning if you suspend, your spouse’s benefit claimed on your record ceases.

Is There Still Time?
Under the Budget Act, the new rules regarding restricted applications will not apply to anyone age 62 or older in 2015. It will only impact those who turn 62 in 2016 or later, which means those planning to engage in a restricted application in 2020 or later can no longer do so.

The rules eliminating file and suspend benefits will not become effective until April 30, 2016, the end of a six-month grace period.Once this grace period is over all future file and suspend strategies will be off the table.So, those who are currently eligible (or will soon reach full retirement age within the grace period) may wish to proactively consider the strategy while it’s available.

The optimal election of Social Security is still primarily driven by an individual’s life expectancy.Even with the recent limitations imposed by this new legislation, working with financial advisors to analyze the timing around receiving Social Security benefits will continue to be an important facet of maximizing the planning opportunities available.

We want to hear from you! Contact Trevor Chuna from Sequoia at tchuna@sequoia-financial.com, or Andy Whitehair from Cohen & Company at awhitehair@cohencpa.com for further discussion.

The views and opinions expressed in this article do not necessarily reflect those of Cohen & Company.

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