Alan M. Schapire, CPA, PFS, CFP | Nov 23, 2015
The Bipartisan Budget Act of 2015 has changed the planning landscape for Social Security benefits. There now are fewer planning strategies to consider or employ, but significant planning is still required to assist clients in making a decision about claiming Social Security benefits. The fall 2015 issue of the Pennsylvania CPA Journal contained the feature ”Determining the Big Day: Help Clients Choose the Right Time to Claim Social Security.” Certain strategies discussed in that article have been affected by the act signed into law on Nov. 2, 2015. This brief update will address those changes and their impact upon Social Security benefit claiming strategies.
File and Suspend Strategies
While the provision allowing an applicant to File and Suspend remains available, the ability to use this strategy as a tool for enhanced family benefits or as a hedge against future developments has been eliminated or greatly curtailed. Anyone who has already reached full retirement age and has used the File and Suspend strategy is not affected by the law change. Also, anyone who may be age 65 ½ as of the enactment of the law, and will therefore reach full retirement age within 180 days after enactment, will retain the ability to use the File and Suspend claiming strategy but must file and suspend before April 30, 2016, to be grandfathered under the old rules.
Anyone who turns age 66 after April 30, 2016, will still be able to suspend an application, but doing so suspends all benefits payable under that individual’s earnings record, including a spousal benefit. This eliminates the strategy for married individuals where one spouse filed and suspended and the other filed a restricted application for a spousal benefit only, thereby allowing both of their benefits to earn delayed retirement credits.
In addition, the ability to retroactively reinstate benefits back to the original filing date is limited to a maximum six-month retroactive reinstatement. The claiming strategy for a single individual to file and suspend, and then receive a lump-sum payment back to the filing date should cash flow or health considerations change, is now limited to six months.
Restricted Application for Spousal Benefits
The change affecting the age criteria for filing a Restricted Application is different than that for File and Suspend. Anyone born in 1953 or earlier, and who will therefore turn age 62 by the end of 2015, is grandfathered under the old rules and retains the ability to file a restricted application regardless of when that filing may occur. Under the new rules applicable to those born after 1953, there will no longer be an opportunity to file an application for Social Security benefits restricted to a spousal benefit. An application for retirement benefits filed by anyone not grandfathered is deemed an application for benefits under the individual’s own earnings record or the spousal benefit, whichever is greater.
Ongoing Planning Considerations
The decision on when to claim – early at age 62 or any time prior to full retirement age, at full retirement age, or at some point after full retirement age with the added delayed retirement credits – is still a significant consideration. There is also the continued coordination of benefit claiming between spouses of different ages, as well as the issues of cash flow and longevity expectations. Most importantly, short-term financial plans for some clients may have been dependent upon, or certainly included, the claiming strategies that have now been altered. For some, the planning may be accelerated. It is important to discuss these changes with clients and update financial projections and retirement expectations in accordance with the new Social Security regulations.
Alan M. Schapire, CPA, PFS, CFP, is a founding principal of Convergent Financial Strategies LLC in Wayne. He can be reached at email@example.com.