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Social Security Changes

 
 

The Bipartisan Budget Act of 2015 passed by Congress and signed by the President includes significant changes to Social Security’s rules. These changes may affect your optimal benefits filing strategy. Maximize My Social Security is now fully updated to account for these new rules.

The new rules dramatically change Social Security and we strongly recommend that you re-run your personal analysis, or if you are a Financial Planner that you re-run the analyses you have provided your clients.
The revised claiming options effectively divide each individual into one of three groups:

  1. People born on or before May 1, 1950 will be the least affected, although if they plan to suspend their retirement benefit and still allow others to collect auxiliary benefits based on their record (i.e., spousal and child benefits) during suspension, they must request benefit suspension no later than April 29, 2016.
  2. People born between May 2, 1950 and January 1, 1954 will see mixed effects of the new rules on their optimal benefits filing strategy.
  3. People born on or after January 2, 1954 will be the most affected in terms of the effects of filing and suspending as well as not being able to file a restricted application for either just a spousal benefit or just a retirement benefit even after their full retirement age. They will not receive auxiliary benefits during suspension.

Individuals in groups 2 and 3, as well as married couples with at least one spouse in group 2 or 3, should recalculate their maximized strategy now that Maximize My Social Security is updated to reflect the new rules. Here’s how the new rules can affect you:

  • No one can collect a spousal or child benefit based on the covered earnings record of a worker who suspends retirement benefits after April 29, 2016 during the period that the worker’s retirement benefit remains suspended. Those born after May 1, 1950 cannot file and suspend within this window and those born on or before May 1, 1950 must request to suspend by April 29, 2016 to allow auxiliary benefits to be claimed on his or her record while their retirement benefit is suspended.
  • No one who requests to suspend his or her retirement benefit after April 29, 2016 can collect an excess spousal or excess widow(er)’s benefit while their retirement benefit is suspended.
  • For those born on or after January 2, 1954, deeming is extended through age 70. Deeming is the requirement that if you take your retirement benefit and are eligible for a spousal benefit or a divorced spouse’s benefit, you need to also take your spousal benefit and vice versa. This leaves you with roughly the larger of the two benefits.
  • Those who suspend their retirement benefits can no longer receive their suspended retirement benefits in a lump sum payment.

If you have purchased Maximize My Social Security, please make sure to go to the What-If Scenario screen and click on the Apply Filing Dates button at the bottom of the screen to confirm that the dates you entered are allowed by Social Security under the new rules.

Note: the treatment of divorced spousal benefits remains unclear but Maximize My Social Security calculates divorced spousal benefits even if the ex-spouse suspends receipt of their retirement benefit because we are assuming this is how Social Security will implement the new rules.

 

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