“The Times They Are A Changing”- Bob Dylan
Sweeping Changes to Popular Social Security Claiming Strategies
By Andrew Rafal
Just when you thought your retirement plan was on autopilot, a significant and recent change may require you to take another look and revise your retirement roadmap. President Obama just signed into law the Bipartisan Budget Act of 2015, which impacts anyone planning to take advantage of Social Security benefits and those who participate in Medicare Part B. This law was passed in record time (the Senate approved it at 3am Friday morning) and has shocked Financial Advisors and Retirees across the country.
So how will millions of Americans be affected by this new law? What the government has referred to as “loopholes” in Social Security insurance are now closed and options are more limited. On the flip side, some Medicare Part B participants may see some relief. Read on to see the three main changes this new plan brings.
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1)The file-and-suspend strategy will be eliminated. Those who have reached full retirement age had an option to file for their Social Security benefits, but request not to be paid immediately. This would allow for an increase of benefits by 8% per year, not counting any cost-of-living adjustments. Using this file-and-suspend strategy allowed for other family members, mainly a spouse, to claim benefits based on your earning records during this same time.
With the new law, your family member will only be able to claim and receive benefits based on your earnings record if you are receiving benefits. There is a 180-day window so there’s still time to take advantage of the file-and-suspend option, of course only if you have reached retirement age. It still is possible to delay receiving Social Security payments until the age of 70 to maximize benefits, however eligible family members would have to wait to claim benefits as well.
2)The restricted application strategy is being eliminated. Current rules allow you to file a restricted application once retirement age is reached, which indicates only a spousal Social Security benefit would be paid out, not your own benefits. This allows the payout of some Social Security benefits, while still allowing some delayed credits (until as late as age 70) before switching to the higher benefit later. If you will turn age 62 by the end of 2015, you’re still eligible, but others will have to make a choice to either wait until as late as age 70 to receive the higher benefits, or receive smaller benefits sooner as delayed credits will no longer be an option.
Use this chart from Michael Kitces to help keep track of deadlines for the new Social Security changes (read his article by clicking here)
3)High-income Medicare Part B participants receive relief. Currently, about 70% of Medicare Part B participants pay monthly premiums that are deducted from Social Security benefits. There is a “hold harmless” provision that prevents a decrease in Social Security payments from year-to-year, so Medicare Part B premiums can’t be increased if there’s no cost-of-living increase for Social Security. The other 30% of Medicare Part B participants are in the high-income category and stuck making up for the shortfall and paying increased premiums.
However, under the new law, the U.S. Treasury will make a substantial loan to Medicare to help meet expenses and reduce the increase in Part B premiums that would have happened otherwise. Premiums will still go up for the high-income group, however it will not be nearly as much as 50%, which is what was anticipated.
As many of you know, the team at Bayntree Wealth Advisors takes great pride in educating our client families on the benefits of maximizing social security. We always stress that education leads to solid decisions made on facts and not emotions. Yes there are sweeping changes coming to Social Security as we know it but there is a silver lining (at least for many of you). Most of the changes will not happen overnight but the countdown is on and TIME is of the ESSENCE.
Given these significant changes, it’s always a good idea to revisit your retirement plan to see how the new law will affect your future, especially if you were planning on using Social Security advanced claiming strategies as part of your retirement plan. For a complimentary analysis of your current plan, or if you have questions on these Social Security or Medicare changes, contact the financial planning team at Bayntree Wealth Advisors at info@bayntree.com.
Bayntree Wealth Advisors is not affiliated with the U.S. government or any governmental agency. Information is not intended to provide specific legal or tax advice. Bayntree Wealth Advisors is not qualified to give tax/legal advice. You are encouraged to consult with the Social Security Administration or your tax or legal professional for guidance on your individual situation.
