New Law Passed Dramatically Changes Social Security Claiming Options
The recent 2016 budget deal has significantly reduced two Social Security claiming rules for retirees known as the Restricted Application and Voluntary Suspension (also known as File and Suspend). These changes could mean hundreds of thousands of dollars to a married couple over their lifetimes.
Over the next four years, the new law phases out the Restricted Application claiming strategy. Prior to the new law, when you filed for a restricted application, you were electing for Social Security to only pay out your spousal benefit and not your full retirement benefit. This option allowed your own benefit to earn delayed retirement credits until age 70, thus creating a larger benefit. If you are age 62 or older by the end of this year, you can still use this restricted application strategy.
In the next six months, changes to the “File and Suspend” claiming strategy will take effect. Under the current rules, once you reach your full retirement age, you are able to file for Social Security benefits and request that your benefit not actually be paid. This allows your benefit to grow by 8% each year, not including any cost-of-living adjustments. Under this method, your spouse or other dependent was able to claim your benefit based on your earnings record, while at the same time allowing your benefit to compound at that 8% growth rate.
Under the new law, if you file and then suspend your benefit, no one can claim your benefit. However, for those of you who are at your full retirement age or older, you can still file and suspend your benefit and allow a spouse or dependent to collect your benefit as long as you file before May 1, 2016.
If you haven’t done so already, I recommend taking into account these new changes to see how this may affect your retirement plan. Now is the time to reach out and speak with your financial advisor about your benefit claiming options for Social Security. You are welcome to give our office a call (775) 853-9033 and go through our complimentary Complete Planning Review to have an overview of your current financial situation.