Teresa McUsic

Budget law ends strategies for enhancing Social Security benefits

Ending the File and Suspend strategy could lower lifetime benefits by as much as $30,000 for some couples.
Ending the File and Suspend strategy could lower lifetime benefits by as much as $30,000 for some couples. AP

Social Security laws changed late last year, and there are a few things to know if you’re close to filing for benefits.

When Congress passed the Bipartisan Budget Act of 2015, tucked inside was what Forbes magazine called the most significant change to Social Security since 1983.

“This change was very quiet,” said Joshua Strittmatter, a certified financial planner and CEO of Strittmatter Wealth Management, with offices in Fort Worth, Arlington, Keller and Weatherford.

While seniors currently in the program won’t see any changes in benefits, the new law takes out a few strategies used by retirees to maximize future benefits.

“There were indeed loopholes that didn’t make a lot of sense,” said Strittmatter, who teaches courses on Social Security strategies at UTA, TCC and Weatherford College. “This is probably a good thing. Anything anyone does now to extend the life of the fund by closing loopholes is to the benefit of anybody taking Social Security in the future.”

At issue are strategies that financial planners said could add thousands to total lifetime benefits.

One is called “File and Suspend.” Under this strategy, one member of a married couple could file for Social Security, enabling their spouse to file for a spousal benefit. The spouse could then suspend his or her own retirement benefit and let it grow during this time.

“The benefit could grow a total of 25 percent between the ages of 62 and 66 and then an additional 32 percent between the ages of 66-70,” said Burk Rosenthal, a certified financial planner and president of Rosenthal Retirement Planning in Fort Worth. That generally translates into ten of thousands of dollars in additional total lifetime benefits, he said.

Because of the change in law that ends this technique, Rosenthal said he had one recent client who may lose close to $30,000, or 30 percent in total lifetime benefits.

He said middle and lower-income people will be more harmed by this change than wealthier ones.

“What’s so unfair about it is Congress could have planned things out over time,” he said. “Some people will be caught up in this because it is so immediate. They planned one way and it isn’t there now.”

Strittmatter said he also has clients who will have to re-evaluate their overall retirement plans because of the changes.

“We’ll have to make them aware of it and start planning to make it up in supplemental income or something else,” he said.

Strittmatter said that current retirees already using the File and Suspend strategy will be grandfathered in.

Also, retirees who qualify by being at least 66 years old have until April 29 to implement the strategy. After that date, any request to suspend benefits will stop all payments on a workers’ record, including spousal or other family benefits.

The other strategy going away is called “File and Restrict.” The change will end the ability of anyone born in 1954 or later to file a restricted application and collect only a spousal benefit while letting their own retirement increase.

Instead, filing for spousal benefits will now trigger a person’s own retirement benefit, and the agency will pay only the greater of the two benefits.

Those who want to use File and Restrict also have a window. If you were 62 by the end of 2015, you can still use File and Restrict to claim spousal benefits off of a spouse’s record. Those turning 62 this year and beyond will not be able to use this strategy.

File and Suspend for retroactive benefits are also going away, Strittmatter said. This allowed for a lump sum payment to the retiree for benefits not received while suspended from age 66 to 70.

Strittmatter said the same new rules apply to divorcees trying to use the strategies.

It’s important to remember that despite the changes, you can still voluntarily suspend your benefits after you turn full retirement age (generally age 66) and put off receiving the increased benefits until age 70, Strittmater said.

“It you don’t need the income, suspending is still an effective strategy,” he said.

Teresa McUsic’s column appears Saturdays. TMcUsic@SavvyConsumer.net

Social Security Classes

* TCC South Campus, 6:30-9:30 p.m., Jan. 14 or 19, $49

* Weatherford College, 6:30-9:30 p.m., Feb. 11 or 16, $49

* UTA, 6:30-9:30 p.m., March 8 or 10, $59

Go to school websites or www.Strittmatterwealth.com to enroll.

Source: Strittmatter Wealth