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The Bipartisan Budget Act of 2015: Changes to Social Security Strategies

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The Bipartisan Budget Act of 2015, signed into law Nov. 2, 2015, contains provisions that affect certain Social Security claiming strategies in an effort to close inadvertent loopholes and prevent individuals from obtaining larger benefits than Congress intended. Those who have achieved or will achieve age 66 by May 1, 2016, who intend to suspend their Social Security benefit, should pay close attention to these changes, as they could require immediate action.

One of the most significant changes is to a retirement strategy known as file-and-suspend. Under the file-and-suspend strategy, a married worker aged 66 or older who files for Social Security retirement benefits may elect to suspend benefits until age 70, which allows for annual increases of 8 percent to accrue and enhance future benefits. However, the worker’s filing also triggers the spouse’s right to claim spousal benefits based on the filer’s work history, assuming the spouse has at least reached age 62. If the worker fails to file-and-suspend prior to May 1, 2016, or does not meet the age eligibility threshold, then the spouse cannot receive spousal benefits until the worker receives his or hers.

A second but no less important change to the file-and-suspend strategy is establishing a claim date. Consider a worker who reaches age 66 prior to May 1, 2016, who files for benefits and suspends them with the intention of taking them at age 70. If that worker is later diagnosed with a life-threating illness at age 69, the worker can retroactively file for benefits back to the initial filing date. The retroactive payments are paid in a lump sum, and any future benefits are recalculated using the original filing date when the worker was age 66.

Under the terms of the new act, that retroactive period is shortened to a period of just six months. Again, to take advantage of this strategy, a worker must meet the age requirement, may not have claimed any Social Security retirement benefits already and must file-and-suspend prior to May 1, 2016.

Seek the services of a legal or tax adviser before implementing any ideas contained in this blog. To reach a financial advisor at Lane Gorman Trubitt PLLC, call (214) 871-7500 or email askus@lgt-cpa.com.