The outrage is palpable. Investors who were counting on exercising a coordinated claiming strategy to maximize their
Social Security benefits and secure their retirement were shocked to learn that most of those options have been virtually eliminated by a stealth act of Congress.
It's not just that file and suspend strategy and the option to restrict
Social Security claims to spousal benefits have been eliminated for all but a small group of people who happened to be born at the right time. It's the fact that there was no advance warning. The
Social Security rule changes were slipped into a backroom budget compromise designed to keep the country from running out of money.
There were no public hearings on the subject. No legislation was introduced. Word leaked out last week just before the House approved the budget deal by a 222-167 margin on Wednesday. The Senate followed with a 64-35 approval in the dark of the night at 3 a.m. Friday. President Barack Obama signed the bill on Monday, just in time to prevent the country's borrowing authority from expiring on Nov. 3.
Now it's time to figure out if you can still take advantage of these valuable claiming strategies before the door shuts forever.
First you need to identify if you fit in either of two groups.
66 BY MAY 1 DEADLINE
For some, 66 is still the magic age. Those who are already 66, or who will turn 66 within six months of the new law being enacted (approximately May 1, 2016), still have the right to file and suspend under the old rules.
That means they can file for benefits and immediately suspend them in order to trigger benefits for a spouse or dependent child while their own retirement benefit continues to grow by 8% per year up to age 70.
Those who file and suspend by the May 1 deadline will also retain the right to request a lump sum payout of suspended benefits any time up to age 70 in lieu of earning delayed retirement credits.
This has been a very valuable strategy for single people. With no spouse to claim survivor benefits in the event of an untimely death, some single people who experience a change in their health or other circumstances found requesting a lump sum payout of suspended benefits provided a welcomed financial cushion.
Those who turn 66 after the deadline will still be able to file and suspend as a way of increasing their benefits after claiming reduced benefits early. Once they turn 66, they can suspend their benefits — and not collect anything in the interim — while their benefits earn delayed retirement credits of 8% per year up to age 70.
But they will no longer be able to have family members collect on their earnings record while their benefits are suspended. Spouses and dependent children will only be able to collect benefits — worth up to 50% of the wage earner's full retirement age amount — if the primary beneficiary is also collecting benefits.
Anyone who has already filed and suspend benefits before the bill was passed can rest assured their family will continue to receive benefits. The original language in the bill would have stopped their checks six months after enactment. But revised language inserted just before House passage ensured that their payments will continue.
62 BY YEAR END
The second group who still may benefit from some Social Security claiming strategies are those who are 62 or older by Dec. 31, 2015. This group will still be permitted to claim just spousal benefits when they turn 66 — assuming their mates have either claimed Social Security or have filed and suspended their benefits before the May 1, 2016 deadline. That will allow them to collect half of their spouse's full retirement age amount for four years and switch to their own retirement benefits at 70 when they will be worth 132% of their full retirement age amount.
Anyone who turns 62 after Dec. 31, 2015, will lose the right to claim spousal benefits only.
Those of us who failed to meet the 62-or-older cutoff in 2015 will be subject to “deeming” rules through age 70. That means if we are entitled to both a retirement benefit on our own earnings record and a spousal benefit, we will be forced to file for both at the same time and be paid the higher of the two benefits. For many married couples, that means that the spousal benefit, which is often smaller than a retirement benefit, will never be paid.
The one group of people who will retain the right to choose when to claim their benefits are surviving spouses who have also earned their own retirement benefit. They can still choose one benefit first and switch to the other later if would result in a bigger and benefit.
The next six months — and in some cases, the next four years — will be crucial for exercising Social Security claiming strategies for those born in 1953 or earlier. But for the rest of us, it's tough luck!
Mary Beth Franklin is a certified financial planner.
