Budget Deal Closes Social Security “Loophole”

The Social Security benefits cut which is part of the recent budget deal is the first major change to the structure of the Social Security benefit payments since 1983.

The change which has been signed into law as of November 2, 2015 will be phased in after 180 days, and will eliminate the ability of couples to have one spouse file and suspend their benefits while the other spouse claims a restricted application spousal benefit.

The projected “long-term savings” have been estimated at $168 billion, but this is over a 75-year period and averages out to less than one or two tenths of a percent of Social Security’s projected benefit payments over that time.

Under file and suspend, married couples can claim a spousal benefit at full retirement age (66 or 67 depending on the year you were born) and then switch to their own benefits as late as age 70. Deferred benefits gain 8% a year up to that point, so a deferred benefit will pay up to 32% more per month than one taken at age 66.

The file and suspend strategies are no longer an option for anyone born after January 2, 1954. Individuals born on or before May 1, 1950, who have not filed yet, still have until May 2, 2016, to file under the old rules.

If you would like help determining if you should make an application under this now expiring provision, act quickly and schedule an appointment to discuss your retirement situation. If you are currently eligible and fail to act before the law takes full effect there are no extensions and this option will no longer be available.

Written by Alvin Wolcott, CPA, CFP®, Senior Wealth Planner

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