Social Security provides an important source of guaranteed income for many federal retirees. Choosing the right claiming strategy is even more important under new Social Security regulations. According to Social Security Administration (SSA) statistics, Social Security benefits account for about 34% of retirement income for the average American.1 One of the biggest mistakes today’s federal retirees can make is to underestimate the importance of Social Security in their retirement strategies. In an era of reduced pensions and volatile markets, Social Security offers government-guaranteed income that isn’t vulnerable to market risk, can’t be outlived, and can provide for your loved ones after your death.
The Social Security landscape changed dramatically in 2015 when Congress abolished several advanced claiming strategies that helped retirees increase lifetime income. The new rules make it more important than ever to make informed decisions when incorporating Social Security into your overall financial strategies.
PAYING ATTENTION TO SOCIAL SECURITY IS MORE IMPORTANT THAN EVER UNDER NEW RULES
On November 2, 2015, President Obama signed into law a bipartisan budget deal that affected two strategies that helped retirees increase their lifetime benefits by claiming income now and claiming more income later: file-and-suspend and restricted applications for benefits.
The new regulations kicked in on May 1, 2016, which means that many retirees will lose access to these advanced strategies after that deadline. Based on our current understanding of the new regulations.
- Retirees who are not at least 62 by January 1, 2016, are no longer able to choose between receiving a spousal benefit or receiving their own benefit. They will be “deemed” as filing for both and will receive the larger of the two benefits without accumulating additional credits.
- After May 1, retirees were no longer able to file and then suspend their own benefit while triggering benefits for a spouse or child. Instead, they will have to receive their own benefit to allow a family member to collect on the primary record. They can still suspend a benefit to accrue credits, but a spouse cannot receive a benefit while it is suspended.
- Retirees who suspend their benefit will no longer be able to receive their suspended benefits in a lump sum before age 70.
- Retirees who have already taken advantage of the old rules (or do so before the deadline) will be grandfathered in and not affected.
Social Security is a foundational element of a retirement income strategy, and the new rules may affect your financial picture. If you had planned to use one of these Social Security benefit strategies to increase your income in retirement, then you will need to revisit your income assumptions to ensure that you have enough to live comfortably. However, there are still ways to increase the amount of Social Security benefits you can claim.
Married couples will still be able to take advantage of other advanced claiming strategies such as delaying one spouse’s benefit to accrue extra credits while the other claims a personal benefit. You can potentially improve your retirement income picture by
- claiming benefits late to earn additional retirement credits,
- minimizing taxes paid on your Social Security benefits,
- maximizing survivor benefits for yourself or your spouse.
No strategy can be right for everyone, and it’s important to consider your entire financial picture when making decisions about Social Security. As with many financial strategies, details matter, and things like age differences between you and your spouse, taxes, and life expectancy can all affect your overall outcome. Under the new Social Security rules, making informed decisions about when to file is critical to making the most of your benefits.
For many federal retirees, Social Security benefits are a key element of their income strategies and account for a significant percentage of their income. It’s absolutely critical to plan ahead now so that you can make the most of this invaluable resource. Every strategy will not work for every retiree, which is why it’s so important to take the time to analyze your needs and test possible scenarios.
The new regulatory environment means that it’s more important than ever to understand your Social Security options. The moral of the tale is this: you cannot depend on a single financial or retirement strategy to build a comfortable retirement. Having a strong understanding of your Federal benefits is the first step in planning for a sound financial picture in retirement. Everyone’s financial structure is different. Working with a financial professional also may help you keep track of changing retirement issues and help you best leverage Social Security in light of your overall financial goals.
Visit our website at www.retireinstitute.com or call us at (877) 864-1145.
FOOTNOTES, DISCLOSURES AND SOURCES:
RBI is not a broker-dealer, investment advisory firm, insurance company, or agency and does not provide investment- or insurance-related advice or recommendations. Brandon Christy, President of RBI, is a registered representative of Christy Capital Management, Inc. (CCM), an investment advisor registered with the state of Georgia and in compliance with the current registration requirements of the states in which the firm maintains clients. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Diversification cannot guarantee a profit or protect against loss in a declining market. Past performance does not guarantee future results. Consult your financial professional before making any investment decision. Opinions are not intended as investment advice or to predict future performance. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information. These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of Retirement Benefits Institute, Inc., and should not be construed as investment advice. Retirement Benefits Institute, Inc. does not give tax or legal advice.
1 “Fast Facts and Figures about Social Security, 2015.” SSA. https://www.ssa. gov/policy/docs/chartbooks/fast_facts/2015/ fast_facts15.pdf [Accessed 3 November 2015] ]