Retirees, Be Wary of Social Security Benefits Changes

Married retirees will no longer be able to “double dip” when claiming Social Security benefits due to the Bipartisan Budget Act of 2015.  Included in that bill signed into law on November 2, 2015 was a provision that eliminated certain strategies that have historically been used by individuals to maximize their Social Security retirement benefits. The act takes effect May 2nd, and consequently many individuals are now rethinking how they plan for their retirement income.

William Moran, senior financial advisor and senior vice president of wealth management at Merrill Lynch shared with what you need to know about the upcoming changes in Social Security and the effect they can have on your retirement planning.

Boomer:  What are the changes to the “file and suspend” or “claim twice” strategies included in the Bipartisan Budget Act of 2015.

Moran:  This legislation curtails two techniques known as “file and suspend” and “filing a restricted application” that are used to implement various claiming strategies.

Under the new law, it will no longer be permissible to file and suspend benefits while allowing a spouse or minor dependent child to claim benefits on one’s earnings. It will still be possible to suspend benefits and earn delayed retirement credits. However, with the new changes, once you suspend your benefits, no other benefits based on your earnings record will be paid to spouses, dependent children or any other individual. As the filer, you will have to collect your own benefits in order for your spouse, dependent children or any other individual to receive spousal or dependent benefits on your record.

If you were born after 1953, you will no longer be allowed to claim your spousal benefit while deferring and receiving delayed retirement credits on your own benefit. Instead, you will be required to file simultaneously for both your spousal benefits and your own benefit. You will receive an amount equal to the greater of the two benefits. Certain individuals born before 1954 remain eligible to file restricted applications.

Boomer:  Who do the changes apply to and what considerations should be taken for those unable to take advantage of the two phased-out plans?

Moran: Individuals who have already implemented the claiming strategies are not impacted. The new rules primarily impact individuals who are eligible for, but have yet to file for their Social Security benefits and those that have already filed but may wish to suspend their benefits.

Boomer:  What strategies should be taken to maximize social security income and factors considered when deciding when and how to claim benefits?

Moran: Some are impacted more than others. It is important to educate yourself on the potential implications these changes may have on your retirement income strategy. Given the limited window to file, for certain eligible individuals, we are prioritizing conversations with clients who are:

?        Age 66 before May 2, 2015 up to age 70 who have not filed or only filed but have not suspended and may still be able to take advantage of these techniques.

?        Age 62 or older by December 31, 2015 (not included in the population above) who may still be able to file a restricted application when they reach Full Retirement Age (FRA) under the new law.

?        Approaching retirement (age 55 and older but not included in the populations listed above) that may have planned on using one of the affected techniques as part of their own retirement income strategy.

We continue to educate clients on these strategies so they can make a more informed decision. We are also using this change as a trigger for a more comprehensive conversation on their financial goals by:

?        Educating them about the various Social Security strategies in order for them to make a more informed decision about when to start taking Social Security benefits.

?        Conducting a custom analysis of their potential Social Security benefits based on the information the client provides.

?        Discussing the role Social Security will play in their overall retirement plan and helping them identify other sources of income in retirement, as well as expected expenses.

?        Helping them attain a better understanding of their retirement goals and sources of income, so we can align their investments to their priorities.

We often remind clients that Social Security should not be relied on as their only source of income in retirement and that savings, investments, pensions and retirement accounts are needed to make sure they understand how much money they need to live comfortably during retirement.