Social Security: Two Benefit Strategies Eliminated

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With the passage of the Bipartisan Budget Act of 2015, two strategies to potentially maximize Social Security benefit payments were eliminated.  Read this article to see if you still qualify.

An Overview

Prior to the budget’s passage, married couples had two strategies to help maximize their Social Security benefits: “file-and-suspend” and “restricted applications.” ¹

Under file-and-suspend, the higher-earning spouse filed for benefits and then suspended them, allowing the lower-earning spouse to claim a spousal benefit. This also let the higher-earning spouse accrue delayed retirement credits. Upon attaining age 70, the couple then could switch to their own individual benefit to receive the highest possible amount.

Restricted Application

A restricted application allowed an individual, upon attaining full retirement age, to file only for a spousal benefit, based on the individual’s spouse’s work record, delaying his or her benefits until age 70. Upon reaching age 70, the individual would then convert to his or her own benefit.

Married couples also could combine the above strategies with one spouse filing and suspending a worker benefit, while the other spouse filed a restricted application to receive the spousal benefit only.

Divorced recipients

These strategies could be used by divorced recipients, too. A divorced spouse was permitted to file a restricted application for a spousal benefit at full retirement age, as long as the former spouse was 62 or older. At age 70, the divorced spouse then switched over to his or her own worker benefit, assuming it was a higher amount.

The Policy Behind the Elimination

The elimination of file-and-suspend claims becomes effective on May 1, 2016. It also prohibits restricted applications for anyone who has not reached age 62 by the end of 2015. Since file-and-suspend is only available to those who have reached full retirement age, it remains available to individuals who are age 66, or will be so by April 30, 2016. (Couples who have already executed such claims are unaffected by the new law.) ²

The reason that Congress acted, and the President signed into law this change, was to save money and close perceived loopholes in the Social Security program.

Overall savings will be small compared to the larger financial challenges that Social Security faces. These changes will save about 0.02 percent of the taxable wages and self-employment income subject to Social Security taxes over the next 75 years, according to the Social Security Administration—a fraction of the program’s long-term deficit of 2.65 percent of taxable payroll.3 ³

According to one study, these changes will impact just 0.1 percent of all Social Security participants. ⁴

Strategy & Choices

There was one other change not yet widely discussed that may have implications for you.

For someone who exercised a file-and-suspend strategy, the rules provided the ability to receive a retroactive lump sum payment if an individual changed his or her mind and lifted the suspension. (They did lose any bump up in payment amount that came with delaying benefit payments, however.) This flexibility is also being eliminated under the budget act.

This ability to lift the suspension was a particularly important planning strategy because it allowed an individual who may have come down with a life-threatening illness or underwent a change in financial status to retroactively go back to their original filing date and receive a lump sum for the benefit amount not paid during the suspension period.

Keep in mind that Social Security has undergone a number of substantive changes since its inception. While the elimination of these strategies may be disappointing, these changes do not undercut the central promise of this critical social contract. In fact, they were implemented to strengthen it.

  1. Social Security Administration, 2016.
  2. Social Security Administration, 2016.
  3. The New York Times, October 30, 2015.

The New York Times, October 30, 2015.

For more information on this subject contact Steve Lloyd, Office Manager, UCCU Financial Group, at 801-223-7502.

Securities and advisory services offered through Cetera Advisor Networks LLC, member FINRA/SIPC.
Cetera is under separate ownership from any other named entity.
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When to Begin Social Security Benefits

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Determining when to begin taking Social Security benefits depends on a number of factors, including whether or not you’re still working, your other sources of retirement income, how soon you need the income to help meet current living expenses, and your life expectancy. While you can begin taking benefits at age 62, many people choose to wait until they reach “full retirement” age—which is 66 for those born between 1943 and 1959, and 67 for those born in 1960 or later. Doing so entitles you to receive full benefits, whereas dipping into Social Security a few years earlier reduces your benefit amounts substantially.

The longer you wait, up to age 70, the greater your benefits will be. At age 70, you are eligible for the maximum annual benefit, which is 32% more than your full retirement benefit, and 76% greater than the benefit you were entitled to receive at age 62.

If you would like assistance in determining when to begin taking Social Security benefits, contact the office at 801-223-7502 to schedule a consultation.

All the best,

UCCU Financial Group

This communication is designed to provide accurate and authoritative information on the subjects covered. It is not, however, intended to provide specific legal, tax, or other professional advice. For specific professional assistance, the services of an appropriate professional should be sought.
Securities and advisory services offered through Cetera Advisor Networks LLC, member FINRA/SIPC.
Cetera is under separate ownership from any other named entity.
Not NCUA/NCUSIF Insured – No Credit Union Guarantee – Not A Deposit – May Lose Value
Not Insured By Any Federal Government Agency.

 

 

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How Will Working Affect Social Security Benefits?

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In a recent survey, 70% of current workers stated they plan to work for pay after retiring. And that possibility raises an interesting question: How will working affect Social Security benefits?  To answer that question requires an understanding of three … Continue reading

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How Will Working Affect Social Security Benefits?

Mature Businessman using tablet computerIn a recent survey, 70% of current workers stated they plan to work for pay after retiring. And that possibility raises an interesting question: How will working affect Social Security benefits?  To answer that question requires an understanding of three key concepts:  full-retirement age, the earnings test, and taxable benefits.

Full Retirement Age

Most workers don’t face an “official” retirement date, according to the Social Security Administration. The Social Security program allows workers to start receiving benefits as soon as they reach age 62—or to put off receiving benefits until age 70½ “Full retirement age” is the age at which individuals become eligible to receive 100% of their Social Security benefits. For example, individuals born in 1955 can receive 100% of their benefits at age 66 years and 2 months.

Earnings Test

Starting Social Security benefits before reaching full retirement age brings into play the earnings test.  If a working individual starts receiving Social Security payments before full retirement age, the Social Security Administration will deduct $1.00 in benefits for each $2.00 that person earns above an annual limit. In 2012, the income limit was $14,640.

Learn more at:
www.ucinvestmentservices.com
Or, contact Steve Lloyd at (801) 223-7502 to set an appointment with one of our financial professionals.
Curtis Willardson, CFP, CLU, Daniel O Palmer, Stephen Martin CFP, CLU, ChFC and Travis Morgan are registered representatives offering securities and advisory services offered through Cetera Advisor Networks LLC, member FINRA/SIPC. David Palmer is a registered representative offering securities through Cetera Advisor Networks LLC, member FINRA/SIPC.  Cetera is under separate ownership from any other named entity. Registered address: 188 W River Park Drive, Provo, UT 84604.
Not NCUA/NCUSIF Insured – No Credit Union Guarantee – Not A Deposit – May Lose Value
Not Insured By Any Federal Government Agency.
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