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In an effort to protect the Social Security Fund for current and future generations of Americans, Congress passed a budget bill to phase out two specific Social Security strategies: the ability to File and Suspend, and the ability to claim Restricted Spousal Benefits (Restricted Application).
Before the Bipartisan Budget Act of 2015 is signed into law on April 30, 2016, under current rules, once clients reach Full Retirement Age (FRA), clients can file for their own benefits and then suspend them in order to accrue more earnings credits. Clients can accrue earnings credits for any age from FRA to 70 years old for an increased Social Security lifetime benefit. In addition, clients can file a restricted application to receive only spousal benefits without concurrently taking their own under the current rules.
With the new provisions, clients will no longer be able to file and suspend their Social Security benefits if they have not reached FRA (age 66) and have not filed paperwork by April 30, 2016. Also, if clients are not age 62 by January 1, 2016, they will not be able to file for restricted spousal benefits at all when they turn FRA. Those clients who do turn age 62 before January 1, 2016 will still have the option to file a restricted application when they reach FRA as long as their spouses have filed and suspended before April 30, 2016 or if their spouses are already receiving their lifetime benefits.
This means that the clients who will be most affected by the new Social Security rules are those who do not turn age 62 by the end of 2015.
The Bipartisan Budget Act of 2015 becomes law on April 30, 2016. Any file and suspend application prior to this date is grandfathered, and any spousal benefits based on that file and suspend or existing benefits will be honored as well.
We understand that these legislative changes can have an impact on retirement income planning for your clients. So on Tuesday, April 19th, we will remove our previous automatic file and suspend logic and replace it with a new grandfathered file and suspend logic, which will include a warning message displayed for the Restricted Spousal Benefits field and limit eligibility based on age.
In the client’s Facts, a new field called “Currently Filed and Suspended” will be added to allow advisors to acknowledge that particular clients are age-eligible to file and suspend and that their eligible clients have done so before April 30, 2016 (or will do so in the following week).
In the Advanced Fact Finder, the new “Currently Filed and Suspended” field will give the advisor a warning if “Yes” is selected for a client who is not age-eligible, and the system will not allow the choice of “Yes” to be saved.
Indicating that a client has “Currently Filed and Suspended” benefits in the Fact Finder will allow the system to grandfather in the ability for the client’s spouse to claim Restricted Spousal Benefits at his or her FRA. If the client is currently taking lifetime benefits, the spouse will be able to claim Restricted Spousal Benefits at his or her FRA as well, as long as the spouse is 62 before January 1, 2016. The Restricted Spousal Benefits field and the logic to start at FRA remains as before, but now, the system will not provide restricted benefits to any clients born after January 1, 1954. To help remind advisors of the new rules, there will also be an addition of a warning asterisk and message anytime the Restricted Spousal Benefit is set to anything other than “None”.
Yes we do! eMoney has the current Social Security table for Full Retirement Ages built into the system, so all we need is the client’s birthdate. We also have early reduction and delay credit calculations based on ages.
If your client is too young to file and suspend (not age 66 before April 30, 2016), the “Currently Filed and Suspended” field in the Advanced Fact Finder will give you a warning asterisk if you choose “Yes” and will not allow you to save the option. Restricted Spousal Benefits will not be provided to any client who is under the age of 62 after January 1, 2016. A warning message will appear if you attempt to model restricted benefits in order to help you verify that the client is eligible.
Besides the addition of the “Currently Filed and Suspended” field, the new warning message with the existing “Restricted Spousal Benefits” field, and new age restrictions to coincide with the new law…. everything else with the Social Security inputs and outputs in eMoney will remain the same!
While there may be fewer combinations of strategies for some people, there is still tremendous value for such analysis. For many clients who are considering delaying their benefit start date, losing some of these strategies may push the break-even point further into their 80’s, thus making the decision more difficult. As before, the Decision Center’s Social Security technique offers a great visual analysis for different options and start ages.
