How to help as 2 Social Security claiming strategies exit

No doubt many advisers were shocked to learn that the recent budget deal struck in Congress included the elimination of two Social Security claiming strategies that could help some of their clients in retirement.

The Center on Budget and Policy Priorities told the Wall Street Journal that only about 100,000 individuals are taking advantage of these strategies right now, but with increased numbers of baby boomers set to retire in the future, that figure and the cost to Social Security undoubtedly would have gone up.

The strategies came into being during the waning months of the Clinton presidency after the passage of the Senior Citizens’ Freedom to Work Act of 2000. The law was designed to give seniors incentives to work after reaching full retirement age, and the claiming strategies that evolved were totally legal.

President Barack Obama previously had criticized them, but their elimination was announced abruptly and was the result of backroom politics pure and simple.

Some pundits have applauded the elimination of the claiming strategies, asserting that they helped only the rich, but advisers interviewed by InvestmentNews reporter Mark Schoeff Jr. disagreed.

“There are a lot of Americans who rely on these strategies to pick up $700 or $800 a month, and that makes a big difference in their quality of life,” one said.

It is a shame that decisions that can affect people’s lives so greatly are made in the shadows and not out in the open where they belong, but perhaps that is just another sign of the political dysfunction in our nation’s capital these days.

What advisers need to focus on now, however, is helping clients who had been counting on taking advantage of these strategies figure out what to do.

GRACE PERIOD

The good news is that depending on their age, some clients still may be able to implement the strategies, as there is a six-month grace period before they are shut down for good.

The strategies being phased out are file and suspend and a restricted application for spousal benefits. Both allow beneficiaries to collect partial benefits while accruing maximum benefits down the road.

The first thing advisers need to do is take an inventory of their clients and their ages to determine who still qualifies to take advantage of these strategies. To implement file and suspend, clients will have to be 66 or be turning 66 within six months. As for filing a restricted application for spousal benefits, clients will have to be 62 or older by the end of the year.

The next step will be to contact those still eligible to discuss their options. Some clients who still qualify may have heard that the strategies were going to be eliminated, but may not know about the grace period.

For those clients who no longer will qualify for the claiming strategies, it’s back to the drawing board. It’s conceivable that advisers and these clients may have baked claiming strategies into their future retirement plans. That means they will have to make up that shortfall, either by extending the number of years they have to work, cutting back on their spending during retirement, or reshuffling their portfolios and possibly taking on more investment risk. None of those options likely will be very attractive to clients.

Over the next few weeks, advisers undoubtedly are going to have to deliver some bad news.

But not delivering it would be even worse. It is in times just like this that advisers truly earn their keep and prove their worth to their clients.

It is also another reminder why machines will never totally replace advisers in the financial advice arena.