Social Security Curve Ball

Social-Security-Card2As of Friday, October 30th, the senate approved the bipartisan budget and it is heading toward President Obama’s desk for his signature.  It contains some nasty surprises for recent or soon to be retirees. While there is a need for Social Security and Medicare reform,  this legislation has come out of left field and will blindside many people.

Section 831 of the budget incorporates President Obama’s proposal to eliminate “aggressive Social Security claiming strategies which allow upper-income beneficiaries to manipulate the timing of collection of Social Security benefits in order to maximize delayed retirement credits.”

Right now, a claiming strategy I suggest for many couples is “file and suspend”.  This allows a qualified worker who has reached full retirement age to file for benefits, but suspend taking payments.  This triggers the opportunity for a spouse or dependent child to collect benefits, while the retiree’s own benefit would continue to grow until age 70.

With this new legislation, there are two effective dates.  One protects those 62 and older by the end of this year to continue to claim their spousal benefits when they reach full retirement age with the assumption that their spouse is already collecting benefits.  However, the “file and suspend” methodology will be eliminated.

Bloomberg reported late Wednesday the “the deal was amended so it affects only retirees who file for benefits in the future, and the change wouldn’t go into effect for six months.”  So, you have a small window to still take advantage of the “file and suspend” opportunity.

The other important date to note is anyone who turns 62 in 2016 or later would lose the right to collect just spousal benefits.  The new provision extends the “deeming” rule that requires those who are entitled to both a retirement benefit and a spousal benefit to file for both and be paid the higher of the two amounts.

This differs from another option I incorporate into plans – the “Restricted Claim”. Upon reaching full retirement age, you can restrict your claim to spousal benefits, collecting half your mate’s full retirement benefit while allowing your own to grow, then switch to your benefit at age 70.

This all came out of left field and will have an impact on many.  Some may think it fair and others – not so much.  We should, however, take note and look at your strategic financial planning options.  You need to ascertain how it will affect you, your family and your cash flow options during your “rewirement” years.  If your current plan incorporated the “file and suspend” or “restricted” claiming strategies, you will want to revisit it in tandem with your other cash flow vehicles.   Each of these strategies could have an impact of hundreds of thousands of dollars depending on how long you live.

Your “rewirement” years are multifaceted and deeply complex. You are benefiting from better health and increased longevity with the opportunity to create your next best self for 20-40 years.  We have entered into a domestic economic season where interest rates have nowhere to go but up. We have to embrace rapidly changing investment environments. Traditional drawdown strategies have come into question.   You are continuously confronted to make wise giving, saving and spending choices.  We need to wisely manage our emotions and engage in proactive ways.   There are numerous challenges and opportunities as you move from the accumulation to distribution season of life.  What do you want to do to step up your game plan and make strategic maneuvers as the government, markets, and life throw continuous curve balls at you?


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