Changes to Social Security law catch experts by surprise

Squirreled away in the federal budget deal passed on November 2nd was an unwelcome surprise for those approaching retirement age: changes to social security rules that effectively put an end to the “file-and-suspend” and “restricted application” strategies, two widely popular methods that many retirees had been using to extend their social security benefits. On May 2nd, 2016, Congress has decreed, those strategies will no longer be allowed.

Loopholes for the wealthy?

Both the Obama administration and the Social Security Administration have portrayed “file-and-suspend” and “restricted application” as loopholes that primarily benefit the wealthy, and claimed that closing them could save the government trillions. But both of these strategies were quite clearly spelled out in the social security rules and in the 2000 legislation that enacted them. And of course, it is not the wealthy that typically rely on social security benefits for their retirement, but those on the lower rungs of the economic ladder. Claiming that these valid strategies are loopholes that only the wealthy use is simply a way to make cuts to the program more palatable.

In reality, these changes mean fewer choices for everyday retirees, not upper-income earners. Unfortunately, many of those who have not been able to plan adequately for their retirement beyond what they will gain from social security will now be left with a much smaller safety net than before, and may wind up spending much of their retirement broke. And the savings to the social security budget gained by these cuts may be canceled out by senior citizens in financial crisis who are forced to lean on the government even more for basic needs.

Who will be grandfathered in?

Starting on May 2nd, 2016, anyone 62 years or older will retain the option to file a restricted application at age 66 to receive a spousal benefit. But they can only do this if their spouse is already receiving a benefit. On the flip side, those who are 66 or older may still file-and-suspend before May 2nd, 2016. However, if you fall outside of those age ranges within this very short six-month window, you will be out of luck.

In the past, changes to the social security rules have virtually always been introduced gradually, giving the public time to comment and upcoming retirees plenty of lead time to plan accordingly. However, these changes were rushed through with no time allowed for anyone to react, and the window of time for upcoming retirees to adjust their plans is very short. May 2nd is the cutoff date. Plan accordingly.

What hasn’t changed?

The calculations for worker, spouse, and survival benefits are unchanged, as are those for claiming early and for deferring. Only the options to ‘file and suspend’ and make ‘restricted applications’ have been removed by congress.

What do I do now?

The abrupt and unannounced changes to social security that have suddenly been rushed into law are a sobering reminder that it is not a wise idea to let social security benefits be your sole retirement plan. If you are concerned about the health of your retirement plan, or if you think you or your spouse may be impacted by these changes, schedule a financial check-up with one of our retirement planning experts today.