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Your Bank > Education and Advice > CNB University

Social Security Changes in 2016

M Schiller 2014
Michael Schiller, CFP® is Vice President - Investment and Financial Planning Officer and can be reached at MSchiller@CNBank.com or (585) 419-0670 x41958.
Social Security claiming strategies have been a key financial topic in recent years, especially as Baby Boomers are planning for and entering into Retirement. As part of the Congressional Budget deal just struck in October by House Republicans and President Obama, two key Social Security claiming strategies have been closed, ending two income-bolstering approaches that benefited married (and divorced) couples, and in some cases their dependents. The strategies being eliminated essentially allowed individuals to collect spousal benefits while their spouse’s own deferred benefit continued to grow by 8% per year.

The first “loophole” to be closed is the File and Suspend strategy. File-and-suspend is a way for couples, usually those with one higher earning spouse and one lower earning spouse, to boost their combined benefits from Social Security. Under this scenario the higher earning spouse files for his/her own benefit at full retirement age, but then suspends the filing. This allows the lower earning spouse to file for the spousal benefit (equaling as high as ½ of the higher earning spouse’s full retirement age benefit), while the higher earning spouse’s own benefit continues to grow 8% annual delayed credits, which are then realized
typically at age 70.

The second “loophole” to be closed is the Claim-now claim-more-later strategy. This strategy is used when the higher earning spouse, one whose own benefit is larger than his spousal benefit, wants to receive just the spousal benefit starting at full retirement age while his/her own benefit earns the 8% per year in delayed credits. This strategy has been key to give married couples sometimes tens of thousands of dollars in spousal benefits while allowing their own benefits to grow, typically to age 70, when they switch back to their own higher benefit.

The ban on file and suspend will start with suspension requests submitted 180 days after the enactment of the bill – around May 1 of 2016. The ban on filing a restricted application (Claim now claim more later strategy) will apply to anyone who turns 62 in 2016 or later. This means, however, anyone who was 62 or older on 12/31/15 would still be eligible to file a restricted application at full retirement age or older. If the restricted application is filed for a spousal benefit, based on a worker who has filed and is receiving his/her own benefit, this strategy will still work. But if that strategy depends on the other spouse filing and suspending, it won’t work if the other spouse did not met the May 1 deadline.

Until about May 1, anyone at or older than Full Retirement Age will be able to file and suspend and have the spouse claim the spousal benefit, same as always. After that, the file and suspend option will be closed while the restricted application option will continue to be available to those who were age 62 or over by 12/31/15 when they reach full retirement age.

The rules for claiming Social Security can appear complex, especially with the recent changes. So working with a knowledgeable Financial Planner at our Wealth Strategies Group will provide you with your individual solutions and options. Contact us today.

This material is provided for general information purposes only and is not a recommendation or solicitation to buy or sell any particular security, product or service. Past performance is not indicative of future investment results. Any investment involves potential risk, including potential loss of capital. Before making any investment decision, please consult your legal, tax and financial advisors. Non-deposit investment products are not bank deposits and are not insured or guaranteed by Canandaigua National Bank & Trust, or any federal or state government or agency and are subject to investment risks, including possible loss of principal amount invested.