Lawmakers recently passed the Bipartisan Budget Act of 2015, intended to prevent a government shutdown. But this bill also has major implications for baby boomers who planned to take advantage of two common Social Security benefit strategies: “file and suspend” and “restricted application.”
What are the strategies?
File and Suspend: Under current rules, a married individual is entitled to file for Social Security benefits at the age of 62 and forgo payments of such in order to increase future Social Security benefits by 8 percent per year. By adding this benefit, you can allow your spouse or family members to claim a benefit based on your earnings record, while also growing your own benefit on an annually compounded basis.
Restricted Application: Current rules allow a person of full retirement age to defer their own retirement benefit while receiving a spousal Social Security benefit, in order to earn delayed credits for a higher benefit on your own Social Security later.
What does it all mean?
The elimination of these two Social Security strategies means the loss of potentially hundreds of thousands of benefit dollars to married couples over their lifetimes.
As of May 1, 2016, no one will be able to voluntarily “file and suspend” benefits. Younger workers will still be able to suspend their benefits, but no one is allowed to collect on their earnings record during that suspension.
As of December 31, 2015, only those age 62 and older will be able to use the “restricted application” strategy. Anyone younger than 62 at the end of 2015 will no longer be able to collect spousal benefits at full retirement age while letting their own benefit grow.
What should you do?
If you are nearing the age of 62 or 66, it is important to understand these changes and speak with your retirement planner, as immediate action may be required. Speak with a certified financial professional to understand how Social Security fits into your overall retirement planning strategy.