“There must be some kind of way out of here, said the joker to the thief,
There’s too much confusion, I can’t get no relief.”
-Jimmy Hendrix, All Along the Watchtower
On Monday, November 2, 2015, President Barack Obama signed the Bipartisan Budget Act of 2015. The primary purpose of this bill was to prevent a government shutdown and alleviate concerns of defaulting on the national debt by creating a two year agreement to fund the federal government and raises the limits for the government’s debt ceiling through March 2017. Also, inserted into this bill were changes to Social Security that will impact millions of Americans.
First and foremost, what has not changed? The calculations used by the Social Security Administration to determine benefits, whether it is for full retirement age, claimed early or deferred, are the same.
Depending on when you were born and if you are currently receiving a Social Security retirement benefit, you may be effected. Due to these changes, I have identified four groups of Social Security recipients.
Group 1 or current Social Security retirement recipients over the age of 66 will not be effected. If you are currently receiving a benefit or employed a strategy such as file-and-suspend, you have been grandfathered and will continue onward with no changes; everyone else may have to learn the new rules.
The second group are those who will be at least 66 years old by April 30, 2016. This group will be allowed to file-and-suspend their benefits as long as they do so by that date. Having one spouse file and suspend at full retirement age, enables the other spouse (or minor dependent child) to collect benefits up to half of the first spouse’s full retirement age benefit. Meanwhile, the first spouse’s benefit continues to grow by ~8% per year until age 70.
Also, the spouse who files-and-suspends also preserves the ability to file for a retroactive benefit. The retroactive benefit allows the individual who filed-and suspended to receive a lump sum payment for all the benefits not received to that point rather than collecting delayed retirement credits. If a lump sum of cash would be more useful than a higher monthly benefit, for an unexpected medical situation for example, this could be a welcomed option.
Group 3 are individuals who are age 62 by December 31, 2015. They will no longer qualify to file-and-suspend their benefits and have their spouse receive the spousal benefit. In order to receive a spousal benefit, the first spouse must be receiving their social security benefit. This group will still qualify to file for a restricted application at full retirement age.
Restricted application is an option to start collecting spousal benefits while your own benefits continue to grow until the maximum age of 70. You must reach full retirement age to file a restricted application and receive only your spousal benefits. If you claim for Social Security retirement spousal benefits prior to your full retirement age, you are deemed to have claimed a combination of your benefits and a spousal benefit. By filing for spousal benefits prior to your full retirement age, your Social Security retirement benefit will not continue to grow. These changes also apply to divorced spouses who were married for 10+ years, divorced for 2+ years and are currently single.
The final group is everyone born in 1954 onward. File-and-suspend and the restricted application will not be allowable options. Everyone in this group who is eligible will receive a Social Security retirement benefit based on their own earnings and/or a spousal benefit will be forced to file for both simultaneously and will receive the stronger of the benefits.
“Yes, there are two paths you can go by, but in the long run,
There’s still time to change the road you’re on.
And it makes me wonder.”
-Led Zeppelin, Stairway to Heaven
Under the current rules everyone who is eligible to receive a Social Security retirement benefit can claim between the ages of 62 and 70. The amount of your benefit will be dictated by when you elect to begin to receive your benefit. The longer you wait, the more you receive. Once reaching full retirement age, you will receive delayed retirement credits of 8% a year until age 70.
It is critical to make an educated decision in deciding when and how to claim your Social Security retirement benefit. This choice may have a significant impact on your lifetime benefits. Considerations should include your personal health and financial situation, family longevity history and survivor benefits to name a few. Everyone has different needs and circumstances which will influence this personal decision.
Know and understand your choice prior to making it. Let me know if I can help.
