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Budget Bill Makes MAJOR Changes to Social Security Planning

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The President signed the bill into law (Bipartisan Budget Act of 2015) on November 2, 2015. The bill will eliminate sophisticated Social Security claiming Strategies such as “File-and-Suspend”. The ability for a client to file-and-suspend, while still allowing other eligible family members to claim a benefit based on that client’s earnings history is eliminated 180 days after the signing of the bill into law. Thus, by May 2016, the file-and-suspend strategy will no longer be available to clients who are not already using it.

How does the strategy “ File and Suspend” work?
Once a filer reaches their full retirement age (FRA), they are able to file for Social Security benefits, and immediately suspend payment. This allows a filer to continue to earn 8% delayed credits each year, but this strategy has other purposes. It allows a spouse to start claiming a benefit based on the original filers earnings record.

This strategy also allows the filer to request a retroactive lump-sum payment for benefits that would have been paid, back to the date of their original filing, if requested.This budget eliminates the file-and-suspend technique by changing the rules so that a filer’s family may only receive a benefit based on the filer’s earnings record if the filer is, himself or herself, receiving a benefit. The budget also eliminates the retroactive lump-sum benefit option.

The bill is also eliminating a similar strategy known as Restricted Application Strategy.
By 2020, both the file-and-suspend and restricted-application strategies will be history. Social Security claiming decisions will continue to be important, but the “advanced” planning strategies utilized by advisors will evaporate.

The file-and-suspend and restricted application strategies will soon be a relics of the past.

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Bill Harris is a Certified Financial Planner practitioner. He is a member of the board of directors for the Financial Planning Association of Massachusetts and an Ed Slott Elite IRA Advisor. He is a co-founder and principal of WH Cornerstone Investments in Duxbury and Kingston: a firm dedicated to empowering people to see their future as greater than their past. Bill is passionate about empowering widows with their financial future and his award-winning email newsletter offers helpful advice and articles for widows looking to rebuild their financial and personal life. He can be reached at www.whcornerstone.com, 888-797-9009, @whcornerstone or @billmharris.

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