Guest Post: Social Security Loopholes Take a Hit

We always thank our friend & colleague Ivie Burns for keeping us updated on retirement benefit tips.

As part of last year’s Bipartisan Budget Act of 2015, Congress approved some major changes to Social Security which could impact your benefits. Designed to eliminate “loopholes,” the new rules will mostly impact married dual-income couples. It is estimated that couples could stand to lose as much as $60,000 in benefits as a result of these changes.

The “File and Suspend” strategy
The biggest change is the elimination of the popular “file and suspend” strategy. Leveraging this strategy, an individual could file for benefits at Full Retirement Age, then immediately suspend payments. The spouse could then file to receive a spousal benefit. The spousal benefit could be equal half of the benefit amount of the spouse who had suspended the benefit. This strategy allowed for a payout of benefits to the household, while both individuals still continued to grow benefits until age 70 at the rate of 8% per year.  Under the new law, spousal or dependent benefits can only be collected once the filer has started collecting their social security benefits.

The “Restricted Application” strategy
Another change eliminated the ability for dual-earner couples to effectively double claim.  Under this loophole, a spouse could choose to file to collect only a spousal benefit upon reaching the full retirement age, then later switch to their own benefits which will most likely be higher due to delayed claiming (at a rate of 8% a year until age 70).

Under the new law, anyone born after Jan 1, 1954 will no longer be allowed to start collecting a spousal benefit upon full retirement age and delay collecting their own benefit. Those born before this date can continue to file for a spousal benefit at their Full Retirement Age and defer their individual benefit to a later time.

Also, the changes won’t necessarily apply to a widow or widower. A surviving spouse could still claim a survivor benefit and defer his or her own retirement provided the survivor has not already filed to receive benefits.

What you can do
Determining the maximum possible Social Security benefits for a household can be quite complicated, depending on age, life expectancy, age disparity, income and other factors. We know Social Security can be an important part of your retirement income, so it’s a good idea to discuss your Social Security strategy with your Financial Advisor to see how it may impact your long-term goals. Reach out to me with any questions you might have.

For more information contact Ivie and his team at www.morganstanleyfa.com/burnsbinkley.

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