There's nothing like a bit of stealth legislation that upends the Social Security advice industry to figure out who is on top of their game — and who is not.
Buried in the budget legislation designed to avoid a government shutdown was the elimination of two key Social Security claiming strategies that can help individuals, married couples and divorced spouses maximize their retirement benefits. Rules affecting surviving spouses have not changed.
“Our software is already updated for advisers and consumers,” William Meyer, president and founder of Social Security Solutions, said via email just days after President Barack Obama signed the Bipartisan Budget Act of 2015 into law on Nov. 2.
“In addition, we have a collateral kit of 10 pieces including a new seminar for advisers, frequently-asked-questions documents and additional pieces for both advisers and clients,” said Mr. Meyer, whose company includes the Social Security Analyzer program for financial advisers.
(More: Game almost over for Social Security claiming strategies)
People born on or before May 1, 1950, (turning 66 for Social Security purposes in April 2016) can still request to file and suspend their Social Security benefits under existing rules that allow them to trigger auxiliary benefits for a spouse or dependent minor child while their own retirement benefits continue to grow by 8% per year up to age 70. Those who file and suspend before the April 30, 2016, deadline also reserve the right to request a lump sum payout of suspended benefits in lieu of delayed retirement credits.
LUMP SUM OPTION WILL DISAPPEAR
But anyone who requests to file and suspend on or after May 1, 2016, will be subject to new rules in which family members will not be able to collect benefits during the suspension period. The lump sum payout option also will disappear.
Separately, another rule change will eliminate the ability of spouses and divorced spouses to collect half of their spouses' or ex-spouses' full retirement age benefit amount when they turn 66 while their own retirement benefits to continue to grow by 8% per year up to age 70.
Under the new rules, anyone who is 62 or older by the end of 2015, retains the right to claim spousal benefits when they turn 66. Younger people do not. When they file for benefits, they will be required to collect the highest benefit to which they are entitled, whether on their own earnings record or as a spouse.
(More: Advisers rethink retirement plans amid Social Security changes)
Joe Elsasser, head of Social Security Timing, said he and his team were putting the finishing touches of the software updates even before the president signed the bill into law. He reported an explosion of interest in
his website, which includes a video and articles explaining the rule changes.
“People keep asking: Is Social Security planning dead?” Mr. Elsasser said. “In the short run, far from it.”
He noted that there will be enormous planning opportunities over the next four years as the new rules are phased in. Even after that, it will still be important to advise clients on the best time to claim Social Security to maximize a couple's lifetime income and survivor benefits, he explained.
Heather Vaartjes, chief operating office of Impact Technologies Group that developed Social Security Pro, said the company updated its software within three days of the legislation's passage and added additional language to its reports and action plans to explain the time constraints for special filing provisions to those still eligible.
“With the elimination of the special Social Security filing strategies for most people, it's more important than ever to ensure taxes on benefits are minimized and cash flow maximized,” Ms. Vaartjes said.
Dinesh Sharma, head of the Omyen technology company that produces Social Security Maximizer, recommends that advisers rerun their Social Security plans using the updated software and discuss potential shortfalls the changes may have left in a client's retirement plan.
“No doubt, it will be a difficult conversation for many clients as it may mean the elimination $100,000 or more in benefits for some couples,” Mr. Sharma said.
WAIT ON MAKING CHANGES
At the other extreme, Maximize My Social Security, a planning website run by Boston University professor and author Laurence Kotlikoff, says its software should be updated by Nov. 16. It warns subscribers not to make any claiming decisions until then.
Social Security Choices, a relatively new program that provides technical advice for the Social Security Advisors network, has not yet updated its software. “We are no longer providing reports for divorced individuals or married couples,” founding partner Jeff Miller said via email.
“We are still providing reports for single people and widow(er)s since they are not affected by the changes,” he said. “We are working diligently to revise our software, but we have not set a date for when we will provide reports again.”
Mary Beth Franklin is a certified financial planner.
