Navigating Changes to Social Security

Understand how new Social Security legislation may affect your benefit claiming strategies

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by David Novak

You may have heard about recent changes to Social Security claiming strategies, but aren’t entirely sure how they affect you, if at all. A subject as complex as Social Security is easy to misunderstand, especially considering that factors like divorce, disability, death – and even your spouse’s earnings history – may greatly alter your benefit eligibility. Notoriously complicated – and hotly debated – this federal program recently changed dramatically when new legislation passed in late 2015; rules that may very well alter your optimal claiming strategy. Here’s what you need to know, and how it will affect you.

What aspects of Social Security were altered by the late 2015 legislation?
Back in 2000, the Senior Citizens Freedom to Work Act was created, intended to avoid penalizing people for working longer. There were two main “voluntary suspension” claiming strategies created by this act, which allowed those who had already claimed Social Security to stop benefit payments and build delayed retirement credits.

  •      File-and-Suspend. This strategy enables a spouse to file for spousal Social Security benefits before the worker is ready to claim his or her own benefit. This has allowed spouses the ability to increase their combined net benefit.
  •      Restricted application for spousal benefits. This enables the higher-earning spouse to receive only the spousal benefit from the lower-earning spouse while his or her own benefit accrues delayed credits. As with File-and-Suspend, this strategy also results in a higher overall benefit for the couple.

How have these voluntary suspension strategies recently changed?
As claims grew much faster than contributions, Social Security became more underfunded with each passing year. Soon, voluntary suspension strategies – entirely legal under Social Security rules – were labeled as “loopholes” for the affluent, and mounting pressures to resolve a hemorrhaging system resulted in a recent budget deal closing the “loopholes.”

As a result of the new legislation, File-and-Suspend ends on May 1. No more spousal or dependent benefits will be paid from suspended benefits, with one exception: those born before May 1, 1950 will be grandfathered in under old rules. If that’s you, be advised that the deadline to formally apply for File-and-Suspend is April 30. The restricted application for spousal benefits will also end, and grandfather in some Americans, those born before Jan. 1, 1954. Everyone else entitled to both his/her own retirement benefit and a spousal benefit will now only be paid the larger of the two.

In light of these changes, what do I need to now consider when calculating my estimated Social Security benefits?
First, many of the advertised Social Security calculators available online claim to analyze your personal work history, tax filing status and financial information to offer you a custom optimal claiming strategy. Be aware, many of these online tools may not have been updated to reflect the new voluntary suspension regulations, so verify directly that they apply current legislation before counting on an automated tool’s advice.

Second, since paper Social Security statements are only sent every five years, be sure you’re working with current details. For access to the most up-to-date information, set up a personalized account at SocialSecurity.gov/MyAccount.

Changes like this are a great time to review not only your Social Security claiming strategy, but your overall retirement plan, to ensure you are maximizing income in this new environment.

David Novak, CFP® is a Certified Financial PlannerTM at Novak & Powell Financial Services in Pinellas County. For more information, email him at david@novakpowell.com.

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