Written By: Sarah Caine, RP

The Bipartisan Budget Act of 2015 made some significant – and rapid – changes to the Social Security System. If we talked to you about Social Security collection strategies in the past, the strategy we recommended may no longer be valid. We will be revisiting this topic with you soon to forge a new strategy. If you are already receiving benefits you probably won’t be affected by these changes.

Here is what changed:

File & Suspend – In the past, once you reached your Full Retirement Age (FRA), you could file for your Social Security benefit and immediately suspend payments. The purpose of this was to enable your spouse to collect spousal benefits on your record while you accrue delayed retirement credits. In the future, you will still be able to suspend your benefit if you regret filing early and want to accrue delayed retirement credits. However, effective May 1, 2016, any request to suspend your benefits will automatically suspend the benefits of anyone else (spouse or dependent children) who are collecting benefits on your record.

Restricted Application (also known as “Claim Some Now; Claim More Later”) – Previously if you were eligible for both a spousal benefit and a benefit on your record, and you were FRA or older, you could file a Restricted Application for Spousal Benefits Only and collect a spousal benefit while your benefit earned delayed retirement credits. If you will be 62 or older by the end of 2015, you will still have this option. However, anyone who was born January 2, 1954 or later will not. They will be “deemed” to be filing for all benefits for which they are eligible (both spousal and personal) when they file.

Combined Strategy – A Combined Strategy combined elements of File & Suspend with filing a Restricted Application for Spousal Benefits Only. Spouse #1 – usually the higher earner – Files & Suspends. Spouse #2 files a Restricted Application for Spousal Benefits Only and begins collecting on Spouse #1’s record. Meanwhile, both spouses accrue delayed retirement credits on their records. After May 1, 2016, this will no longer work. When Spouse #1 Suspends, the benefit Spouse #2 is collecting on Spouse #1’s record will automatically be suspended as well. There is a brief window remaining to take advantage of this strategy; however, for it to be successful, both spouses must reach their Full Retirement Age (FRA) and the strategy needs to be fully implemented before May 1, 2016.

Lump Sum Repayments – Previously, if you Filed & Suspended, you could request to have any and all withheld benefits repaid as a lump sum. You can no longer do this. There is no grace period; this option disappeared with the bill’s passage.

Where does that leave you?

  • If your strategy has already been put into action and you are receiving benefits, these changes will likely not affect you.
  • If you and your spouse will both reach FRA before May 1, 2016, you have a (brief!) window in which to enact any of the above strategies. Talk to your financial advisor immediately because May 1, 2016 is a hard deadline – any strategy involving File & Suspend or a Combined Strategy needs to be put into place before that date or it will not work.
  • If you won’t reach FRA before May 1, 2016, but you will be at least 62 before the end of 2015, you will still have the option of filing a Restricted Application for Spousal Benefits Only as long as your spouse is actively receiving benefits. If you spouse suspends his/ her benefit, the benefit you are receiving on his/ her record will also be suspended.
  • If you will not reach 62 by the end of 2015, you will not be able to take advantage of any of the above strategies. However, there are still many nuances involved in determining when to claim Social Security benefits, and a financial advisor can still provide substantial guidance in this area.

This is a brief summary of the changes the Bipartisan Budget Act of 2015 made to Social Security claiming strategies.  If you have any questions about the strategies outlined above – or if you would like your personal situation reviewed in light of the new legislation – please contact your financial strategist.

Written By: Sarah Caine, RP