For many Americans, Social Security has always been a paramount factor when determining one’s retirement income. Over the years, claiming tactics have been very effective in maximizing Social Security benefits. However, due to the Budget Act of 2015, certain claiming strategies have been slated to change in a big way for the coming year. These changes may have negative impacts on those close to retirement who may have benefited from the tactics that will soon cease to exist once these changes take effect on April 29, 2016. As one nears retirement, it is very important to remain vigilant of new legislations that can directly impact one’s retirement income benefits. In order to plan effectively and circumvent potential speed bumps, it is crucial to develop a concrete understanding of the impending changes to Social Security.
One of the most profound changes that will result from the passing of this act is the end of the “file-and-suspend” claiming strategy. The “file-and-suspend” option was a way for married couples to increase their Social Security claiming options by allowing themselves to take advantage of spousal benefits and "delayed retirement credits" simultaneously. With this strategy, his or her spouse could claim a spousal benefit while allowing his or her own retirement benefit to grow at 8 percent per year until age 70. Spouses who did not have a work history of their own were likely to deploy this claiming strategy. This claiming tactic was especially useful for the generation of retirees and those near-retirees whose demographics were that of single-earner families.
The other major change to prepare yourself for is the shutdown of the restricted-application option. This option allowed inpiduals who had not yet filed for any benefits, and whose spouse has an established filing date, to file (a specific restricted application) only for the spousal benefit that is based upon the spouse’s record.
It is important to note that no one turning 62 in 2016 will be able to implement the “file-and-suspend” or restricted-application claiming strategies. Additionally, these reforms are not retroactive. This means that those inpiduals already collecting benefits through file-and-suspend and the restricted-application tactics will not be affected and thus their social security benefits will remain unchanged. Unfortunately, not everyone will be so lucky.
With these powerful claiming tools coming to an end, millions of Americans who were planning on implementing these strategies to maximize their household’s lifetime benefits must now figure out an alternative path. Both of the aforementioned approaches generate higher benefit payouts for entitled recipients and have already been baked into the retirement planning of many aging citizens. The removal of these claiming tactics may cost an average middle class couple $70,000 over their life-time of collecting social security benefits.
Given the impending changes to Social Security, many inpiduals nearing retirement may find themselves in a bind to make up for the lost retirement income without these claiming strategies. It is crucial to factor such changes into your current financial plan in order to discern the impact. In anticipation of May 2016, contact Mitlin Financial, Inc. today to have your inpidual situation reviewed. Also be sure to check out the latest Mitlin Minute to learn more about the changes coming to Social Security benefit claiming options. Let Mitlin Financial assist you with your financial planning and help to facilitate your financial future!
Disclaimer: This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.