Social Security recently got more complicated.
On April 29, two popular Social Security claiming strategies that had become pillars of retirement income planning were changed, causing advisers to search for new options for clients.
New legislation has gotten rid of the popular file-and-suspend and filing-a-restricted-option claiming strategies.
Overall, the new rules shift the breakeven age for couples into the future, compared with the old rules.
Given the complexities of the changes, advisers will be needed to provide crucial guidance.
Eliminating the file-and-suspend strategy, which was ushered in by the Bipartisan Budget Act of 2015 “created the false impression that Social Security claiming has become easier,” says William Meyer, founder and managing principal of both Retiree Inc. and Social Security Solutions.
“It’s quite the opposite,” he says. “The changes have made it even more complicated to recommend an optimal strategy to clients.”
Retiree Inc., based in Leawood, Kan., provides Social Security-claiming strategies and retirement income distribution advice to advisers. Social Security Solutions provides similar services to consumers and financial professionals.
Included in the reasoning for the Bipartisan Budget Act of 2015 was that legislators were closing “unintended loopholes,” says Lucas Casarez, a wealth adviser at Keystone Financial Services, a registered investment adviser based in Loveland, Colo.
The file-and-suspend ruling was commonly used by married couples to maximize benefits.
“The fact that some individuals may have been grandfathered in the previous rules makes it important that individuals have a firm grasp on the cut-off dates and how they truly play out,” Casarez says. “Individuals need a financial professional in their corner to guide them.”
Under the old rules, for example, “if a husband was 63 at the start of 2015, but the wife was 61, the husband had the option to file a restricted application and choose whether to take a spousal benefit on his wife’s benefit instead of his own to allow his own benefit to grow,” Casarez says.
“In this scenario, his wife would not have the choice and would only be entitled to take her own benefit,” he says.
The difference now is that spouses who don’t qualify for their own benefit will have to wait until the working spouse has actually started receiving his or her benefit, which would likely force the working spouse to turn over his or her benefit sooner than expected, Casarez says.
“As a result, this will likely affect future widowers who outlive their spouses because they will be locked in at a lower amount than the maximum benefit they may have received if the working spouse was able to delay their benefit until age 70,” he says.
Still, even with the recent changes “there remain as many as 10,000 distinct Social Security claiming strategies,” Meyer says. “Advisers’ clients still expect them to provide expert advice on their claiming options.”
This story is part of a 30-30 series on preparing for retirement.
Register or login for access to this item and much more
All Financial Planning content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access