Once you recover from the initial shock of learning that the most valuable Social Security claiming strategies are being phased out, take steps to turn this game-changing event into an opportunity.
Or as Frank Horath, principal of Client First Financial, which specializes in Social Security income strategies, so aptly put it in a newsletter: “Carve out new client Social Security solutions this Thanksgiving.”
That's what Derek Dockendorf and Matt Cosgriff, financial advisers with Bergan KDV Wealth Management in Minneapolis, plan to do.
“We're using this as an opportunity to enhance our value to our clients,” said Mr. Dockendorf, a CPA and certified financial planner. “With our tax software, we can mine the data to search for clients based on their date of birth, filing status and whether they are currently drawing Social Security,” he said.
“Once we identify those in the sweet spot, it creates an opportunity for us to talk to our clients about the Social Security changes and to make sure they hear it from us first,” Mr. Cosgriff added.
The sweet spot includes two groups of clients: those who will be 66 or older by the April 30, 2016, deadline to file and suspend Social Security benefits under existing rules, and those who are 62 or older by the end of 2015, who retain the right to claim spousal benefits only when they turn 66.
DEADLINES
Clients who miss the April 30, 2016, and Dec. 31, 2015, deadlines will not be able to use the two claiming strategies in the future because of
changes included in the Bipartisan Budget Act of 2015 that President Barack Obama signed into law on Nov. 2.
First, a brief refresher course on why these strategies have been so valuable.
The
file and suspend strategy allows a wage earner who is full retirement age or older to file for Social Security benefits and then immediately suspend them. In the meantime, it enables a spouse or minor dependent child to collect auxiliary benefits worth up to half of the parent or spouse's full retirement age benefit amount while the wage earner's benefits continue to grow by 8% per year up to age 70.
In addition to triggering family benefits, the file and suspend strategy also allows a wage earner to change his or her mind any time before age 70 and request a lump sum payment of all the suspended benefits instead of collecting delayed retirement credits. This has been a particularly valuable strategy for unmarried individuals who experience a change in health or financial condition.
But beginning May 1, 2016, requests to file and suspend benefits will operate under a new set of rules. No family members will be able to claim benefits during the suspension period and the lump sum payout of suspended benefits will no longer be available.
LIMITED USE OF FILE AND SUSPEND
In the future, the only use of the file and suspend strategy will be for those people who claimed reduced benefits early who want to increase their future benefits. By suspending their benefits at 66 or later, it will allow them to earn delayed retirement credits of 8% per year up to age 70, increasing not only their retirement benefits but the potential survivor benefit for the spouse they may leave behind.
“Recent changes to Social Security law have left your clients and prospects even more confused than ever about what strategies they can use to claim benefits,” Social Security Solutions, a leading provider of software and adviser training, said in a newsletter announcing its
fully updated software program. “This confusing time around Social Security is a great business opportunity for you.”
Laurence Kotlikoff, an economics professor at Boston University and president of the personal financial planning software company, Economic Security Planning Inc. that includes Maximize My Social Security, noted that “while the law's main changes involve reducing the usefulness of the file and suspend strategy for most people, the new rule makes many collection strategies far more complex.”
Mr. Kotlikoff added: “So the need for Social Security optimization is, if anything, greater than ever.”
Once the partners at Bergan KDV Wealth Management identify clients who are grandfathered under existing Social Security rules, then they will reach out to those who missed the cut off, Mr. Cosgriff explained. “We'll sit down with them and discuss how their overall retirement plans are affected now that these options are off the table.”
I am curious how other advisers are handling these changes in Social Security claiming rules and how they are communicating this information to their clients. If you care to share your ideas, please
email me.
