Financial Planning

Social Security Changes

December 16, 2015

In early November President Obama signed the Bipartisan Budget Act of 2015 into law. This act includes key changes to the Social Security claiming rules. These changes focus on the “Restricted Application” and “Voluntary Suspension” rules, which combined create the “File and Suspend” strategy. The changes to the law will be phased in over the next year and are date of birth sensitive. We outline the strategies below, along with the changes and important filing deadlines or eligibility requirements related to each strategy. Since these strategies may no longer be available to certain individuals based on the timeframes below, you may have a limited window to act to take advantage of these planning strategies.

Social Security Legislation Impacts By Date of Birth

Individual D.O.B. Grandfathered May 1, 1950 or earlier January 1, 1954 or earlier January 2, 1954 or later
Strategies Available If you have already filed a restricted application or elected to suspend benefits, there are no changes to your filings. Voluntary Suspension and Restricted Application remain available until 04/30/16. Restricted application will remain available at full retirement age. Voluntary suspension is no longer available. Neither “Restricted Application” nor “File and Suspend” strategy available.
Action Item N/A File your application prior to 04/30/16. Review strategies prior to filing. Review strategies prior to filing.

Voluntary Suspension: Under this strategy, an individual could file a standard application at his/her full retirement age and then immediately suspend the receipt of those benefits. In doing so, the benefit would continue to grow until age 70. The annual benefit would grow approximately 8% per year plus cost of living adjustments. Meanwhile, the individual’s spouse could file and claim the 50% spousal benefit based on the primary wage earners benefit at his/her full retirement age (or earlier at 62 with the applicable discount). This strategy would allow a couple to begin receiving the spousal benefit income (50% of the primary wage earners full retirement benefit) while allowing the primary wage earner’s benefit to be deferred and continue to grow until age 70. At age 70, the higher benefit would then be available for the remainder of both lives, thereby creating some additional longevity protection for both spouses.

Based on the changes in the new law, this strategy is no longer available. Once an individual elects to suspend his/her benefit, then all associated benefits (including the spousal benefit) must cease. The law allows for a transition period for those individuals who were born on May 1, 1950 or earlier. For those individuals the “Voluntary Suspension” strategy will remain available until April 30, 2016. The filing and voluntary suspension election must be made prior to that date. The viability of this benefit will depend on both spouse’s earnings records, ages, and health.

Restricted Application: Similar to a voluntary suspension, filing a restricted application allowed one member of a couple to claim a spousal benefit after reaching full retirement age, while allowing his/her personal benefit to be deferred and grow until age 70. They would then be able to switch from the spousal benefit to his/her higher personal benefit. This strategy is often useful if both spouses have significant earnings, so that allowing their personal benefit to grow would eclipse the 50% spousal benefit.

As the new law is phased in, the restricted application will no longer be available. The law will allow the restricted application to remain available after full retirement age only for those individuals born on or before January 1, 1954.

File and Suspend: This strategy is a combination of the “Voluntary Suspension” and “Restricted Application” options. Under this strategy, the primary wage earner would elect to voluntarily suspend his/her personal benefit at full retirement age (prior to the transition window on 4/30/2016). The spouse would then file a restricted application, allowing his/her personal benefit to grow, while also receiving the spousal benefit available under the primary wage earners now suspended application. At age 70 the primary wage earner would receive the maximum available benefit, while the other spouse would receive the larger of the continued spousal benefit or his/her personal benefit that was allowed to grow until age 70.

Individuals born January 2, 1954 or later will no longer have the ability to use the “Voluntary Suspension” and/or “Restricted Application” strategies. Important decisions will remain as to how and when to file for Social Security. It is also important to note that these changes generally have no impact on claiming strategies for single individuals. In addition, the changes primarily concern retirement and spousal benefits - widows will continue to have the opportunity of restricting an application to widow or retirement benefits, and switch to the higher benefit in the future.

In all cases, the decision on how and when to file for Social Security benefits is an important one, and should be considered in the overall context of your financial plan. Remember to consult with your advisor regarding the specifics of your situation.

The information provided does not constitute legal, tax, or investment advice and it should not be relied on as such. It does not take into account any investor’s particular investment objectives, strategies, tax status, or investment horizon. Please consult with a financial counselor, attorney, or tax professional regarding your specific investment, legal, or tax situation. It should not be considered a solicitation to buy or an offer to provide investment advisory or other services. The information contained in this white paper may change at any time without prior notice and is based on data obtained from Nationwide Retirement Institute, a source we consider to be reliable; however, we cannot guarantee that the information is accurate or complete.

Connect with a wealth advisor

No matter where you are in life, we can help. Get started with one of our experts today. Contact us at 800-582-1076 or submit an online form.

Contact us

This document is intended as a broad overview of some of the services provided to certain types of Washington Trust Wealth Management clients. This material is presented solely for informational purposes, and nothing herein constitutes investment, legal, accounting, actuarial or tax advice. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. Please consult with a financial counselor, an attorney or tax professional regarding your specific financial, legal or tax situation. No recommendation or advice is being given in this presentation as to whether any investment or fund is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors, or markets identified and described were, or will be, profitable.

Any views or opinions expressed are those of Washington Trust Wealth Management and are subject to change based on product changes, market, and other conditions. All information is current as of the date of this material and is subject to change without notice. This document, and the information contained herein, is not, and does not constitute, a public or retail offer to buy, sell, or hold a security or a public or retail solicitation of an offer to buy, sell, or hold, any fund, units or shares of any fund, security or other instrument, or to participate in any investment strategy, or an offer to render any wealth management services. Past Performance is No Guarantee of Future Results.

It is important to remember that investing entails risk. Stock markets and investments in individual stocks are volatile and can decline significantly in response to issuer, market, economic, political, regulatory, geopolitical, and other conditions. Investments in foreign markets through issuers or currencies can involve greater risk and volatility than U.S. investments because of adverse market, economic, political, regulatory, geopolitical, or other conditions. Emerging markets can have less market structure, depth, and regulatory oversight and greater political, social, and economic instability than developed markets. Fixed Income investments, including floating rate bonds, involve risks such as interest rate risk, credit risk and market risk, including the possible loss of principal. Interest rate risk is the risk that interest rates will rise, causing bond prices to fall. The value of a portfolio will fluctuate based on market conditions and the value of the underlying securities. Diversification does not assure or guarantee better performance and cannot eliminate the risk of investment loss. Investors should contact a tax advisor regarding the suitability of tax-exempt investments in their portfolio.