Your Social Security Benefits Have Changed -- What Do You Do Now?
February 16, 2016
Did you know -- on Friday, October 30th the Senate passed the Bipartisan Budget Act of 2015. BUT WHAT DOES THAT EVEN MEAN?
One retirement vehicle that has had its fair share of misunderstandings is Social Security. There are basically three insurance components within the system, which includes retirement income, survivor’s income and disability. But when you add politics and the media into the mix, it’s no wonder people have a problem understanding how Social Security works or more importantly, how to get the most out of it to better their situation. With that being said, on Friday, October 30th at approximately 3 AM, the Senate passed the Bipartisan Budget Act of 2015. Not only did America wake up that morning to a balanced budget that extended into 2017, but with the deal came some significant changes to Social Security. There was no public awareness of what was to take place, so most people were caught off guard. Since Social Security is a crucial part of retirement planning, we needed to get some questions answered. What changed? How does it affect our client’s retirement? How do we incorporate this new law?
The new budget agreement was not only designed to help grow the economy, create jobs and reduce spending, but also to protect Social Security benefits. One of the changes that took place with Social Security, is the elimination of the file-and-suspend strategy, which was an unintended loophole that offered some married couples the opportunity to increase their benefits. The way it worked, is that the higher earner would file for Social Security benefits at full retirement age then immediately suspend those benefits. The spouse would then file for spousal benefits and collect up to half of the higher earner’s full retirement benefit. This allowed the higher earner’s Socials Security benefit to continue to grow at an 8% annual increase during the next three to four years until the age of 70. At age 70, the higher earner would turn off the suspend mechanism and start to collect 135% of their full retirement income. This strategy also worked well for dependent children.
If you haven’t worked with a financial planner, there is a good possibility you didn’t know these loopholes existed. The good news is if you are 66 years old or will be 66 by the end of April 2016, you may still be able to take advantage of the strategy. If you are currently using file-and-suspend, it will not be taken away from you. For those that didn’t know about the option, or were unable to trigger the strategy due to age restrictions, take note that it wasn’t for everyone. When planning for retirement, there are many different factors that determine whether or not one chooses a certain strategy. For example, a family’s life expectancy or current illness may merit withdrawing Social Security benefits sooner rather than later. Low income and a small nest egg at retirement would be another good reason to access benefits early.
Financial planning is the key to retiring successfully and acquiring financial independence. Working with a professional will gain you access to understanding the vast sources and retirement vehicles available to you. With the possibility of Social Security being your only retirement account that has a cost of living increase, knowing your options and how to best use them to better your situation is crucial. Tax laws will change. Balancing the budget will continue to be an issue and lawmakers will need to make changes to help keep our country moving forward. By working with a financial professional, you will be educated on the changes that are taking place, how those changes affect you and your family, and clearly know that there is a solution.