The Bipartisan Budget Act of 2015 passed by the 114th
Congress in December made some changes in benefits that were available for
claiming Social Security benefits. How, and when, individuals and couples claim
their Social Security benefits can have significant impact on the amounts
received over the claimant’s lifetime(s). Usually, the minimum age for claiming
benefits is 62; however, benefits will be reduced by 6 2/3 % for each year
younger than the “full retirement age” (FRA) at which benefits could be
received with no reduction. That FRA is dependent on the claimant’s date of
birth. Benefits increase by 8% per year for each year beyond FRA that a person
waits to start drawing his/her Social Security. The increase in benefit applied
only until age 70; no further increase is available after that age. Two major
changes were impacted by the Budget Tax Act; it eliminated “file and suspend”
and “spousal benefit” provisions. The old rules are in place until April 30,
2016; after that, new rules are in place.
File and Suspend
The
file and suspend provision allowed on individual who had reached his/her FRA to
file for Social Security benefits but defer the collection of those benefits
until sometime in the future. That delay allowed the recipient’s benefits to
increase by 8% per year until benefit payments actually started. If, during
that suspension time, the claimant decided to receive the original payment from
FRA, that option was available. And, a lump sum for the amount that would have
been received was available. In addition, auxiliary benefits might be available
to a spouse or minor dependent. The real benefit was the spousal benefit (see
below).
Restricted Claim for
Spousal Benefits
The
spousal benefits provision allowed a spouse (who had reached FRA) to file for
50% of their spouse’s Social Security benefit (who also reached FRA) while
letting their own benefit grow. For example: Spouse A could receive $2000 per
month at FRA; that spouse “files and suspends.” Spouse B (at FRA) could receive
50% ($1000 per month) while both spouses let their own benefits increase by 8%
per year until age 70. Spouse B could then take the larger of the 50% or
his/her own benefit.
The Rules Change
After
April 30, 2016, an individual may still file and suspend at FRA; however, no
one else may collect any benefits on the individual’s record while the
suspension is in place (subject to the exception below). In addition, the
option to request a lump sum payment for deferred benefits no longer exists.
Anyone
who is age 62 or older at the end of 2015 retains the right to claim only
spousal benefits when they reach age 66 and receive their (hopefully larger)
retirement benefit at age 70. Anyone younger than 62 at the end of 2015 will no
longer have the option of which benefit to claim; they will be paid the higher
of their own benefit or as a spouse.
Divorcees
who were 62 or older at the end of 2015 fall under the four year phase in rule
also. They must have been married at least 10 years, divorced two years, and
are currently single. They can file for spousal benefits at age 66 and change
to their own higher benefit at age 70.
We
at Paragon Financial Advisors work with our clients to help them achieve their
financial goals. That includes evaluating Social Security options; we do
request that each individual discuss his/her personal circumstances with the
Social Security personnel to confirm their personal history. Paragon Financial Advisors is a fee-only registered investment advisory company located in College Station, Texas. We offer financial planning and investment management.
