At this time of year, I usually like to write to everyone about charitable giving and thankfulness for the blessings that have come our way in 2015. However, if you haven’t already heard, I need to communicate the impact of a recent Congressional budget deal on Social Security claiming strategies. I’ll briefly discuss giving, but only after you know why you may need to revisit your claiming strategy.
This month’s newsletter looks at the following topics:
- Congressional Budget Deal’s Changes to Social Security Claiming Rules
- Summary of Changes
- Who is Impacted
- What to do if this Impacts You
Congressional Budget Deal’s Changes to Social Security Claiming Rules
Summary of Changes
My initial reaction to the budget deal was “hooray!” since it meant we did not have to go over the fiscal cliff again. But that was before I understood that in the deal were some of the biggest changes to Social Security claiming we have seen in many years.
Please go to http://www.investmentnews.com/article/20151028/FREE/151029902/budget-deal-would-nix-popular-social-security-claiming-strategies for a summary. In essence, the “file and suspend” claiming strategy for couples is going away, and it will go away quickly, if the deadlines in the bill are realistic. (The article in the link does express some skepticism at the speed with which this change can be implemented, since the wheels of government machinery turn slowly, but anything is possible.)
What this means is that there will be fewer options for taking Social Security benefits for couples. While this simplifies planning, it may also mean less money in your pocket. It certainly means that if you are a pre-retiree, if you used a file and suspend strategy, you should run the numbers again in your retirement plan to see what makes the most sense for you under the new rules.
Even though file-and-suspend may be going away, deferral of benefits still means a significant increase in benefits. But if the file-and-suspend strategy made a difference in the success of your plan, you may find you need to save more now that the approach is no longer available.
Who is Impacted
Obviously couples are impacted by these recent changes. But based on some press descriptions, you may think this does not impact you when in fact it does. There is a lot of talk about how this is only an option for “the wealthy” and that it is a loophole that should be closed. I disagree with the rhetoric surrounding this change. I can think of lots of middle class people who will be impacted who probably do not consider themselves “wealthy.” So any couple, regardless of income, should re-run their estimated claiming strategies.
Singles who were planning on using “file and suspend” to increase retroactive benefits if they changed their minds should also revisit those plans. Under the new rules, retroactive benefits no longer apply. Instead, you only receive your benefit effective at the time you decide to start benefits, including delayed credits.
There was a provision for the truly well off as well. The legislation also places a surcharge on high-income recipients of Medicare. This will be costly for wealthier retirees. Please see the article for the new surcharges. These pale in comparison to the elimination of “file and suspend,” however.
What to Do if this Impacts You
If file-and-suspend was part of your retirement plan, and if Social Security was a large part of your retirement plan, please get in touch to update those projections. This is a bigger issue if your retirement is imminent. If you are approaching retirement, but still have several years, you have time to save more, if necessary, to make up for less anticipated Social Security income.
If you are right on the cusp of claiming benefits, there is not much you can do, although there are some exceptions which do not apply to many filers. But at least you can prepare your income expectations and budget accordingly.
In either case, better to know than to use the ostrich strategy (head-in-the sand).