The shocking, big story from last week was from the U. S. Capitol. As Congress hammered out a budget deal to avoid another government shutdown, they turned their sights on Social Security claiming strategies. Since President Clinton’s 2000 legislation to make claiming easier, planners have been leveraging loopholes to maximize retiree benefits. A huge industry has sprung up offering advice, tips and calculators to gain the highest payout.
All for naught, it seems. In the new legislation, all loopholes were to be closed upon adoption. A late amendment to the proposal allows those currently collecting a higher benefit to continue at the same rate. The legislation will be phased in, which means if you are currently at, or near, your full retirement age, you may have the opportunity to take advantage of the claiming strategies before they are gone forever. Even if you are not near full retirement age, your parents or in-laws could benefit from your foresight.
Currently, at full retirement age, a spouse can elect to claim his or her spousal benefit and allow their own benefit to grow to age 70. (This is known as Restricted Application.) Delayed Social Security benefits grow at a guaranteed 8% a year until age 70, which is better than any investment or annuity can offer. Anyone born in 1953 or earlier will be grandfathered and allowed to file a restricted application upon full retirement. If you are born after 1953, you are out of luck.
Another popular strategy was “File and Suspend,” where the high-earning spouse would file and immediately suspend his/her benefit allowing the spouse to file for spousal benefits. Both spouses’ benefits continue to grow to age 70. They would then switch to claiming their own inflated benefits. This strategy also works for unmarried individuals. The individual could file and suspend. Their benefit would continue to grow, but they would have the opportunity to claim a lump sum of the suspended benefits at any time before they turn 70. Under the new legislation, this approach will be eliminated six months after the date of the legislation. Potential retirees now have six months to claim this strategy.
Social Security will continue to be a complex process. Even after closing these loopholes, there will continue to be much to consider on your path to a comfortable retirement. As always, consult your financial professional.
Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.