Questions keep pouring in from
InvestmentNews readers regarding how individual clients will be affected by the new
Social Security rules that eliminate creative claiming strategies for future retirees.
I'm doing my best to answer their questions based on existing
Social Security rules and interpreting the Bipartisan Budget Act of 2015 that established new ones. But frankly, I am frustrated.
Every week I ask the
Social Security Administration when they will issue official guidance, and every week I get the same response: “Our legislative and policy staffs are diligently working with Congress to analyze the intent of the legislation and update our instructions.”
The SSA's Office of Legislation and Congressional Affairs issued a two-page summary of the legislation in December, explaining why Congress closed the
Social Security “loopholes.” But the document did not contain any effective dates other than to say the law closes these loopholes “prospectively” so that new claimants cannot use them.
“These loopholes are often described as 'aggressive claiming strategies' because they involve higher-income individuals who follow a deliberate claiming pattern — often under the advice of financial planners — to exploit benefits in a manner that is not the norm (or an option) for most middle-class workers,” the document stated.
“While a relatively small number of individuals currently use aggressive claiming, these numbers were expected to grow as more baby boomers retired and became aware of these tactics,” potentially harming the program's finances, it explained. SSA estimates that as of December 2014, less than 0.2% of
Social Security beneficiaries were using the two key claiming strategies.
One strategy, known as file and suspend, allows a worker to claim retirement benefits at 66 and immediately suspend those benefits so they continue to earn delayed retirement credits of 8% per year up to age 70. In the meantime, it allows a spouse or minor dependent child to collect benefits on the worker's earnings record.
The other strategy allows a spouse or qualified ex-spouse who was married at least 10 years and is currently single to claim only spousal benefits at full retirement age while their own retirement benefit continues to grow up until age 70.
According to the legislation, a new set of rules apply to any requests to file and suspend submitted “at least 180 days after the day of enactment.” The new rules would no longer permit any family members to claim benefits on a worker's earning record during the suspension. It would also eliminate the current option that allows someone to request that their suspended benefit be paid in a lump sum rather than earning delayed retirement credits.
President Barack Obama signed the bill into law on Nov. 2, 2015. Adding 180 days would set the deadline to file and suspend under existing rules by April 30, 2016. But that's a Saturday. So maybe it's Friday, April 29. Or perhaps it is Monday, May 2. Who knows?
Some people have suggested that since people can apply for
Social Security benefits up to four months before their birthday, someone who turns 66 in August 2016 could still submit a request to file and suspend by April 30. I don't have a good answer, and I can't speculate. I asked SSA that question repeatedly and got the same vague response.
The law is more specific on the elimination of claiming spousal benefits only. “The amendments made by this subsection shall apply with respect to individuals who attain age 62 in any calendar year after 2015. Technically, if you turn 62 on Jan. 1, 2016, you can claim benefits as if you turned 62 in the prior year.
Based on the questions I have received, the biggest confusion involves the April 30, 2016 (or there about) deadline. It only applies to people who want to file and suspend. It does not apply to those who want to claim only spousal benefits. As long as you turned 62 by Jan. 1, 2016, you retain the right to claim spousal benefits only when you turn 66 — assuming your mate is already receiving benefits or was old enough to fine and suspend by April 30, 2016.
The SSA's Office of Legislation and Congressional Affairs document also noted that divorced spouses are not affected by the new rules that would eliminate the ability of family members to collect benefits if a worker suspended his benefits. In other words, one ex-spouse cannot block a former spouse from collecting benefits on his or her earnings record. But an ex-spouse must be at least 62 by the end of 2015 to claim spousal benefits only when he or she turns 66.
The SSA report also stressed that legislative changes do not affect survivor benefits.
Mary Beth Franklin is a contributing editor to InvestmentNews
and a certified financial planner.
