What Do I Need To Know? How Does It Affect Me?
Last fall, a late night budget deal included a few changes for Social Security. So what does it mean and do you need to worry about it?
It Depends… on when you were born
- A) If you were born before April 30, 1950, you have a few months to make a decision about your claiming strategy if you aren’t already drawing from Social Security.
- B) If you were born on January 1, 1954 or earlier, you have a few years to make a different decision.
- C) If you were born after January 1, 1954, you don’t need to do anything. Some of the claiming strategies that used to be available are now no longer being offered. If, like many, you didn’t know about these strategies, you don’t need to learn about them now. If you did know about them and were hoping to take advantage of them, the rules have changed. You have time to make other plans.
And, if you’re already drawing your Social Security benefit, nothing will change for you, you’ve been grandfathered in.
So what has changed?
Some of the ways you can draw your Social Security benefits have changed. I won’t go through all the changes but I’ll highlight some of the most discussed ones.
First, some definitions:
Types of Benefits: When you draw on Social Security, you are usually drawing a benefit based on your own work record, your spouse’s (or ex-spouse’s) work record, or a survivor benefit. Before this law change, you could sometimes specify if you wanted to draw on your own benefit or a spouse’s (or ex-spouse’s) benefit.
File and Suspend: One person in a couple files for benefits but suspends them – doesn’t take them – so the other person can file for spousal benefits.
Restricted Application: A person files for benefits but restricts them to only the spousal benefit – letting their own benefit grow until they draw on it later.
The new bill is eliminating the File and Suspend and Restricted application strategies.
For those in category A, you have a few more months to take advantage of the File and Suspend strategy before it goes away for good. This can benefit you if one spouse is eligible to draw a spousal benefit on the work record of the other. One or both of you can then let your own benefits continue to grow until age 70 while one is drawing a spousal benefit. This can add up to significant amounts of money over time. If you are in this age range and believe you could benefit from this strategy, talk with an advisor and make plans to file your paperwork with Social Security by April 29, 2016. This strategy will no longer be available starting April 30, 2016.
For those in category B, if you miss out on the File and Suspend strategy, you can still take advantage of the Restricted application, even if you do so years from now. This means as long as your spouse is drawing their benefit, you can file a Restricted application to get only your spousal benefit. Your own benefit can continue to grow by 8% per year until you decide to draw it rather than the spousal benefit.
And for those in category C, part of the reason for these changes is to help put the Social Security system in a stronger financial position. You can take some hope that this will help keep Social Security strong for longer for all of us. When you do file for Social Security benefits, you will receive the highest benefit available to you at the time. This takes the guesswork out of the process and also the strategizing which has become popular.
These are not the only changes but they are the main ones. If you have questions about how the changes affect you, feel free to contact us and we will help you figure out your best plan going forward.
Kristin Rodriguez