Social Security Update: New Retirement Rules – Part 2

By Greer Gibson Bacon, CFP®

 

Last month, we looked at how the Bipartisan Budget Act of 2015 impacts the Claim & Suspend strategy and one-earner couples.  As a reminder, if you’re at least 66 on May 1, 2016 and want to implement it, you must do so no later than April 30, 2016.    If you missed the column, you’ll find it at the Spokane County Medical Society website (spcms.org).  

 
This month, we’ll look at how the new law impacts the Claim Now, Claim More Later strategy and two-earner couples.  But, first, let’s review a few key retirement benefit facts.  One, if you’re half of a two-earner couple, you’re a dual eligible.  So, you can claim benefits based on your earnings record (worker’s benefits) or that of your spouse (spouse’s benefits).  Two, your spouse must claim worker’s benefits before you can claim spouse’s benefits, or vice versa.  Three, a worker’s benefit grows by 8% per year for each year it’s delayed between full retirement age and age 70.
 
What is Claim Now, Claim More Later
 
Until 2000, Social Security paid a dual eligible claiming retirement benefits the greater of his worker’s benefit or spouse’s benefit regardless of age.  The Senior Citizens’ Freedom to Work Act changed this.  Specifically, it allowed workers claiming benefits at or beyond full retirement age to file a restricted application for spouse’s benefits only.  In turn, this allowed them to delay and grow worker’s benefits until age 70, at which time they would switch to them.  
 
For obvious reasons, the Claim Now, Claim More Later strategy has been popular with two-earner couples and it’s been built into many retirement plans.  It maximizes retirement benefits while both spouses are living, and then, survivor benefits after the first spouse dies, just like Claim & Suspend does for one-earner couples.  
 
How’s it changed?
 
The Bipartisan Budget Act of 2015 eliminates the Claim Now, Claim More Later strategy with two exceptions.  
  • If you’ve already started implementing the strategy, you’re grandfathered.
  • If you were at least age 62 on December 31, 2015, then you may still implement the strategy.  If you fall into this group but are unsure if it’s right for you, you should consult with an experienced financial advisor before taking action.
Again, if you don’t qualify for an exception, you’re out-of-luck.
 
 
Final Thoughts
 
In reality, the Bipartisan Budget Act of 2015 simply closes loopholes created by the Senior Citizens’ Freedom to Work Act of 2000.  While there is no impact for some of us, it’s a game changer for most.  This means a lot of plans need to be revisited.  
 
All is not lost.  Worker’s benefits still grow by 8% per year for each year they’re delayed between full retirement age and age 70.  That’s a good return on investment.  For those who have the financial resources to delay benefits, it likely makes sense to do so.  It will just take a bit longer to break-even.  But, even if you don’t live to break-even, you’ll maximize benefits for your surviving spouse. 
 


Calculating Break-even:  Claim Now, Claim More Later Strategy

Full worker’s benefit

$ _________

Less: Full spouse’s benefit

- _________

Missed benefit

$ _________

Multiplied by years missed

x _________

Total missed benefits

$ _________

 

 

Delayed worker’s benefit

$ _________

Less: Full worker’s benefit

- _________

Increased benefit

$ _________

 

 

Total missed benefits

$ _________

Divided by increased benefit

÷ _________

Years to break-even

 _________

Even if you don’t live to break-even, using this strategy will maximize the survivor benefit paid to your spouse.

This article first appeared in the April 2016 Spokane County Medical Society Magazine. The information referenced in the article is current as of date of publication.

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