Is Social Security an important part of your retirement planning? If so, you need to understand the huge changes that are coming your way.
What’s Going On?
Congress recently passed The Bipartisan Budget Bill of 2015. The name sounds benign at first. But in reality this law takes a hatchet to Social Security retirement benefits planning as we know it. As a result, many of your retirement income plans could go out the window.
Two snazzy claiming strategies are kaput starting early next year. The “file and suspend” and the “restricted applications” are done.
Once you reach full retirement age, the current rules allow you to file for benefits but not actually get them. Why do this? First, it allows you to keep racking up credits – and bump up your benefits by 8% per year. Second, the “file and suspend” strategy allows your family members to make a claim and start receiving benefits, based on your benefits (even though you aren’t receiving any). But after May 1, 2016, the only way your loved ones will get anything out of Social Security is if you actually receive your benefits.
(If you have reached full retirement age or older you can still tap into the “file and suspend” strategy if you do so before the deadline. And if you’ve already implemented this strategy, you can continue to do so because you will be “grandfathered” in. But after May 1st 2016, forget about trying this maneuver – it won’t work.
People who file a “restricted application” are in the same boat. Under current rules once you reach full retirement age you can fill for spousal benefits and then switch to receive your own higher payments at age 70. This trick is also going bye bye.
If you are already receiving spousal benefits under this tactic, you can continue to do so. And if you are age 62 or older by the end of 2015, you’ll still be able to use this technique if you get in before May 1, 2016. But if you are younger than that, forget about it.
What You Should Do Now
The “File and Suspend” and “Restricted Applications” were like free lunches – and the food truck has moved on. There is no sense in wringing your hands and lamenting this sad state of affairs because it won’t help. Social Security is in financial trouble and by making this change, the government is going to save roughly $10 billion a year. Don’t hold you breathe hoping they will reverse course.
I ran the numbers for myself and my wife and this new law is going to cost us about $50,000. That’s a drag – but there is nothing I can do about it. It just means that my own planning becomes that much more important. I can’t control what the government does with Social Security benefits so I have to take a harder look at those things I can control.
If you are age 62 or older, it’s time to consider claiming strategies now – don’t wait. If you are too young (like me ?) pull out your retirement plan. Is it time to run your projections again? If you were counting on “file and suspend” or “restricted application” you should re-run your plan since these options are history. Look at your new projections and if those lost benefits might create problems for you down the road it’s time to work out a plan around that now rather than wait for your financial ship to start taking on water.
- Should you work a year or two longer?
- Should you change your investments to provide greater opportunities for retirement income?
- Will you cut back on some planned travel?
Facing retirement with less income is no fun – but it’s better to get your strategy in place now rather than wait.
Is this change in Social Security Benefits going to impact your retirement income? What are you going to do about it? Are you going to re-run your financial plan? Why or why not?