Broker Check

Boca Raton Office

1001 W. Yamato Rd

Suite 306
Boca Raton, FL 33431

Big Changes to Social Security

Fall 2015 Edition

Buried in the budget legislation designed to avoid a government shutdown last month was the elimination of two key Social Security planning strategies that advisers have used to help their clients maximize their retirement benefits.  This issue addresses the elimination of the “File-and-Suspend Strategy” and the “Restricted Application Strategy” as a result of the new law.

The Elimination of the File-and-Suspend Strategy

Under the “old” rules, once a client reached their full retirement age (FRA), they were able to file for their Social Security benefits, but request that such benefit not actually be paid.  By doing so, it allowed a client to continue to earn 8% delayed credits each year for their own benefit, while serving two other primary purposes.

First, once a client filed for their own benefit, it allowed certain other family members – most commonly a spouse – to claim a benefit based on the client’s earning record.  Second, in the event a client changed their mind about waiting until a later date to receive Social Security benefits (i.e. perhaps due to changes in health, financial market conditions, etc.), the file-and-suspend strategy allowed them to request a lump-sum payment for benefits that would have been paid, back to the date of their application.  

Now, thanks to the Bipartisan Budget Act of 2015, the file-and-suspend strategy is being eliminated, effective for suspension requests submitted 180 days after the signing of the act, which occurred on November 2, 2015.  In other words, by May 2016 the file-and-suspend strategy will be a relic of the past.  The good news is that anyone who is lucky enough to be able to file-and-suspend within the 180-day “grace period” – as well as those who have already employed the strategy – will be grandfathered into the old rules.  After May 2016, family members will no longer be able to collect benefits during the suspension period.  The lump sum payment option also will disappear.

The Elimination of the Restricted Application Strategy

Separately, another rule change will eliminate the ability of spouses and divorced spouses to collect half of their spouses’ or ex-spouses’ full retirement-age benefit amount when they reach FRA, while their own retirement benefits continue to grow by 8% per year until age 70.   Under the “old” rule, once a client reached their FRA, they were able to file such a restricted application, and thereby receive at least some Social Security benefit.

Again, thanks to the new budget law, the restricted application strategy is on its way out the door.  To be sure, the new rules allow anyone who is 62 or older by the end of 2015 to retain the right to claim spousal benefits when they turn 66.  Younger people will not be able to file solely for their spousal benefits while allowing their own benefit to continue to compound and grow.

Feel free to call our office for the timing and implementation of these important changes.  We have already begun to revise Social Security projections in some of our clients’ retirement plans.  Again, if you’re fortunate enough to still be eligible for either of these strategies, call so we can help ensure that you act in a timely manner, if beneficial.