New Budget Act Drastically Changes Social Security Election Strategies
by Stephan J. Lipskis, Esq.
As part of our monthly seminar series earlier this year, Jeff Gump and I presented information on strategies for optimizing election of social security benefits. The newly passed “Bipartisan Budget Act of 2015” eliminates certain claiming strategies that were discussed at our seminar and may drastically impact those entering retirement in the near future.
I. What Did the Act Do?
The act left the core retirement benefits of social security unchanged. This means that spousal, retirement, and survivor benefits all remain in place, but the act significantly restricted the ability to forego personal benefits (in order to increase the benefit amount) while another individual claims on your record. This strategy was commonly known as a “file and suspend” strategy. Those turning 66 after May 1, 2016 are most dramatically affected by this change. Simply put, younger individuals will be unable to file and suspend if a spouse or ex-spouse claims off their record. They will be forced to begin taking their benefits rather than benefiting from regular increases due to deferral. Another significant change is that the ability to choose whether to elect a spousal benefit or your own benefit is eliminated for those turning 62 after 2015. Previously, this enabled an individual to elect a spousal benefit and then switch to their own retirement benefit after reaching full retirement age or 70. Now, those filing will receive the greater of the spousal benefit or their personal worker’s benefit. Those turning 62 prior to the end of this year will continue to be able to use this strategy.
II. Who Do these Changes Affect?
Primarily these changes affect individuals who are (or will be) 66 prior to May 1, 2016 and those who will turn 62 after December 31, 2015. For the latter group, careful evaluation of your retirement income plan may be needed if you were anticipating an aggressive election strategy with your spouse. The couples benefitting most from such claiming strategies were generally in one of the following categories: large disparity in age between spouses; large difference in income between spouses; dual high-earning spouses; and dual high-earning spouses with age disparities. The suspended filing allowed the end retirement benefit to continue to grow until age 70 while the spouse or ex-spouse would claim a spousal benefit equal to half of the spouses benefit.
III. Who Needs to Act Now?
If you are 66 years or older prior to May 1, 2016 and have yet to start your Social Security benefits, you should seriously consider filing and suspending. This is particularly applicable for couples where the older spouse has the more significant work record and wishes to take advantage of the automatic increases until age 70 before taking their benefit. Should you choose to wait until after May 1, 2016 to file for benefits, the spouse will not be able to claim a spousal benefit unless you are already claiming your personal benefit.
While Social Security claiming strategies seem complicated and confusing to many, they are an important facet of securing sufficient income for your retirement. Given these rule changes, those in retirement or near retirement should consult with an elder law attorney or financial planner to determine how this affects their intended claiming strategy. For some this may mean you need to act before the May 1, 2016 deadline.
Ask Kit Kat – Disney Cats
Hook Law Center: Kit Kat, what can you tell us about the feral cats at Disneyland in Anaheim, CA?
Kit Kat: Well, you’re going to love this story! At Disneyland in Anaheim, CA, there is a colony of feral cats. Lest you be afraid, fear not! The cats have been there since the 1950s when Walt Disney himself stumbled upon some cats at Sleeping Beauty’s castle. Rather than dispose of them, some intelligent person realized that their presence could actually be beneficial. The 100 or so cats are spayed/neutered, flea-free, and have received vaccinations, so they pose no threat to visitors. During the day, one can occasionally catch a glimpse of them resting in grassy areas or on the dock in the Jungle Cruise area, but they largely come out at night and keep rodents like mice at bay.
One may wonder how their numbers are controlled? Disney practices TNR (trap, neuter, and return), so breeding is kept to a minimum. Disney also provides a protected feeding and litter area. These practices collectively are called a “maintained” feral colony. If you would like to know more about the Disney cats, they have a website and Instagram and Twitter accounts. So if you go to Disneyland, you may catch a glimpse of one of these productive felines! Some of them even have names. (http://www.mnn.com/earth-matters/animals/stories/disneyland-feral-cats-rule) (11-2-15)
- November 16, 2015 – Hook Law Center Seminar Series continues with Jessica Hayes speaking on “Estate Planning for Your Brady Bunch” in regards to planning for your second marriages. Register here for the seminar in Virginia Beach at 10am at the Crowne Plaza Hotel – Virginia Beach Towne Center, 4453 Bonney Road, Virginia Beach, VA 23462.
- November 19, 2015 – Hook Law Center Seminar Series continues with Jessica Hayes speaking on “Estate Planning for Your Brady Bunch” in regards to planning for your second marriages. Register here for the seminar in Suffolk at 10am at the Hilton Garden Inn – Harbour View Suffolk, 5921 Harbour View Blvd, Suffolk, VA 23435.
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