There's about 1.5 million baby boomers who need to decide, before April 30, 2016, whether to file and suspend their Social Security benefits. Your clients may be among them.
Due to the recent passage of the Bipartisan Budget Bill of 2015, there have been sweeping changes to Social Security legislation and claiming strategies. “These dramatic changes may result in thousands of dollars of lost retirement income for your older clients," warns the Financial Experts Network, a free online educational resource for consumers and financial advisers on topics such as Social Security, Medicare, reverse mortgages and college planning.
Financial Experts Network founder Tom Dickson shared the results of a new Social Security quiz posted on his
company's homepage and invited
InvestmentNews readers to take a shot at it. Warning: Based on the results of the first 358 people who took the 10-question quiz, the average score was just 6.6. Only 12% of participants got 9 out of 10 right and 10% scored a perfect 10. (I did!)
Another word of caution: The quiz assumes the effective date of the new Social Security rules is April 29, 2016, rather than April 30, as I have been reporting. Just go with it. Until the Social Security Administration issues its official guidance on the new rules resulting from the Bipartisan Budget Act of 2015, the official start date is a bit murky.
Based on the hundreds of emails I have received since President Barack Obama signed the legislation into law on Nov. 2, 2015, there seems to be great confusion among
InvestmentNews readers as to which clients are grandfathered under existing claiming rules and when they have to act to maximize their benefits.
There are two separate claiming strategies at stake and two separate deadlines.
Only those people who are 66 or older by May 1, 2016, making them eligible to claim benefits in April, need to file and suspend their benefits before the end of April in order to trigger benefits for a spouse or minor dependent child.
Submitting a request to file and suspend by the end of April also locks in the current option to request a lump sum payout of suspended benefits instead of collecting delayed retirement credits of 8% per year between full retirement age and age 70.
Beginning May 1, any new request to suspend benefits will no longer trigger auxiliary benefits for spouses and children during the suspension period and the lump sum payout option will disappear.
Separately, anyone who is 62 or older by the end of 2015 retains the right to claim only their spousal benefits when they turn 66, assuming their spouse is collecting benefits or was old enough to file and suspend by the April 2016 deadline.
Those who are are at least 62 by the end of 2015 (including those born on Jan. 1, 1954) do not need to do anything by the April 2016 deadline, as many readers seem to think. When they turn 66, they can file a restricted claim for spousal benefits. Those who are younger than 62 by the end of 2015 cannot use this valuable claiming strategy.
Financial Engines, the nation's largest independent Registered Investment Adviser that works with American workers through their employer-sponsored retirement plans, has announced that it's
free Social Security claiming tool has been updated for the new rules.
However, the tool has its limits. For example, when I plugged in my husband's and my information, it suggested I should claim Social Security benefits at age 64 (even though I still plan to be working three years from now) so my husband, who would be 66 at the time, could claim spousal benefits on my earnings record. The fine print of the Financial Engines report noted that continued earnings could reduce or eliminate benefits if claiming Social Security before full retirement age. In my case, it would temporarily wipe out benefits for both of us. But if I didn't know to look for this caveat, it would be easy to miss.
Mary Beth Franklin is a contributing editor to InvestmentNews
and a certified financial planner.
