Retirement 2.0blog

Game almost over for Social Security claiming strategies

Congressional budget deal provision could affect current and future retirees

Oct 28, 2015 @ 5:39 pm

By Mary Beth Franklin

As soon as the news leaked out that a pending congressional budget deal would kill existing Social Security claiming strategies for almost everyone, I was inundated with questions from financial advisers and individual consumers about what it all means.

Was I surprised? Yes. Absolutely gob smacked!

Will retirees who already exercised such creative claiming strategies such as file and suspend or filing a restricted claim for spousal benefits before this legislation is signed into law be grandfathered? It appears that in most cases, they would not be protected.

First, let me explain what the legislation says and then what it means. Please keep in mind, this situation is fluid. The legislation passed the House 222-167 Wednesday and now moves on to the Senate, where it is expected to win support and be signed by President Obama.

It all started with Mr. Obama's budget proposal for fiscal year 2015. In that document, the administration called for changing the rules to eliminate “aggressive Social Security claiming strategies which allow upper-income beneficiaries to manipulate the timing of collection of Social Security benefits in order to maximize delayed retirement credits.”

(Related: 10 crucial facts about when and how to claim Social Security)

Fast forward to this week. During backroom negotiations, congressional leaders of both parties and administration officials worked out a budget compromise to keep the government running for the next two years and avoid a shutdown before the government's borrowing authority runs out next week. But the massive legislation also contained a few nasty surprises.

CLOSING LOOPHOLES

Sec. 831 of the document is titled “Closure of unintended loopholes.” The document summary explains that this provision “closes several loopholes in Social Security's rules” regarding filing a restricted claim for spousal benefits and suspending benefits “in order to prevent individuals from obtaining larger benefits than Congress intended.”

There are two effective dates in the proposal. One protects anyone who is 62 or older by the end of this year to continue to claim just spousal benefits when they reach full retirement age. But that assumes their spouse has actually claimed and is receiving Social Security benefits.

However, if one spouse has filed and suspended benefits in order to trigger a spousal benefit, all bets are off.

That's because a separate part of the proposal would eliminate the current usage of “file and suspend” that allows someone who has reached full retirement age to file for Social Security benefits but does not collect them in order to trigger benefits for a spouse or dependent child. Meanwhile, the retiree's own benefit would continue to grow by 8% per year up until age 70.

Originally, the proposed legislation would change the rules for filing and suspending benefits starting six months after the legislation is enacted and it seemed as if it would affect everyone — even those who have already filed and suspended benefits. Under the new rules, if someone files and suspends their retirement benefits, it would also stop any spousal or dependent benefits on their record until that person actually began collecting Social Security benefits.

However, Bloomberg reported late Wednesday that “the deal was amended so it affects only retirees who file for benefits in the future, and the change wouldn't go into effect for six months.” The Bloomberg report said, “That means older workers who want to use the strategy could still do so until early next year."

It also appears that anyone who turns 62 in 2016 or later would lose the right to collect just spousal benefits because the new provision extends the “deeming” rules that require those who are entitled to both a retirement benefit and a spousal benefit to file for both and be paid the higher of the two amounts.

Under current law, once you reach the full retirement age of 66, you can restrict your claim to spousal benefits and collect half of your mate's full retirement age benefit while allowing your own retirement benefit to continue to grow by 8% per year up to age 70 and then switch to your own benefit. The new rules would eliminate that option.

At this point, it appears that widows and widowers will still have the option to claim a survivor benefit first and switch to a retirement benefit later, or vice versa, in whichever order would result in a larger benefit.

There are still many unanswered questions at this point, and I will update readers as information becomes available.

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

Apr 30

Conference

Retirement Income Summit

Join InvestmentNews at the 12th annual Retirement Income Summit - the industry's premier retirement planning conference.Much has changed - and much remains to be learned. Attend and discuss how the future is full of opportunity for ... Learn more

Featured video

INTV

Why some retirement plan advisers think Fidelity is invading their turf

InvestmentNews editor Frederick P. Gabriel Jr. and reporter Greg Iacurci talk about this week's cover story that looks at whether Fidelity Investments is stepping on the toes of retirement plan advisers.

Latest news & opinion

Is Fidelity competing with retirement plan advisers?

As the Boston-based mutual fund giant expands the products and services it brings to the retirement market, some financial advisers say the firm is encroaching on their turf.

Gun violence hits investment strategies, sparks political debates with advisers

Screening out weapons companies has limited downside.

Whistleblower said to collect $30 million in JPMorgan case

The bank did not properly disclose that it was steering asset-management customers into investments that would be profitable for JPMorgan Chase.

If Finra eases firm oversight of outside business activities, broker-dealers could lose revenue

Brokerage firms would no longer be able to charge reps for supervising nonaffiliated RIAs.

Galvin charges Scottrade with DOL fiduciary rule violations

Action of Massachusetts' top regulator shows states can put teeth into a rule under review by the Trump administration.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print