Judith B. Paul Law Blog

Thursday, November 5, 2015

Social Security Changes 2015

Here's what I received from Northwestern Mutual Insurance Company that I thought was a pretty good explanation of the Social Security retirement benefit strategy changes in last week's Budget bill.

President Obama signed the Bipartisan Budget Act of 2015 (the Act) on Monday, November 2. Section 831 of the Act closes two key social security strategies, namely File and Suspend and Claim Now, Claim More Later.
What is changing?
1.     File and Suspend will disappear.
As you may know, this strategy has the higher-earning spouse apply for benefits at full retirement age (FRA) and then immediately suspending receipt of these benefits until age 70. Under this strategy, the lower-earning spouse is able to receive spousal benefits, while the higher-earning spouse earns delayed retirement credits (DRCs) -resulting in much larger benefits for the higher-earning spouse at age 70.
This strategy will close 6 months after the passage of the Act. After May 2, 2016, if you choose to file and suspend, your spouse or other dependents will no longer be allowed to collect off of your suspended benefit. Additionally, the opportunity to change your mind and collect those back benefits in a lump sum from the date of suspension will also no longer be available.
In other words, there is no real reason to file and suspend. If you wish to delay, you simply can delay and collect delayed retirement credits.
2.       Claim Now, Claim More Later (also called the "Spousal Switch") is also disappearing.
In this strategy, the lower-earning spouse can apply for worker's benefits, and the higher-earning spouse, who is at FRA can file a restricted application for spousal benefits. By claiming spousal benefits, the higher-earning spouse delays receipt of his or her own benefits, earning DRCs. When the higher earner reaches 70, he or she can switch to his or her own worker's benefits, which have increased through DRCs over time. In order to claim more benefits later, the spouse who wants to claim the spousal benefits first and then switch to his or her own benefits later must be at FRA when claiming the spousal benefits, and the lower-earning spouse must have applied for his or her benefits.
This Act has eliminated the Claim Now, Claim More Later strategy by extending the deemed filing rule all the way to age 70. Under the deemed filing rule, if a person is entitled to both a retirement benefit and a spousal benefit, at the time he or she files for benefits, the applicant will automatically be paid the larger of the two. Under the old law, this only applied until the applicant reached his or her full retirement age (FRA). Under the Act, there is no cut off age. The filing will always be a deemed filing.
This change applies to anyone turning 62 in 2016 or later.

What can I do now?
1.     If you are at FRA, (FULL RETIREMENT AGE) you have until May 2, 2016 to file and suspend your benefit and have your spouse or other family member claim spousal or other dependent benefits off of your record.
2.     The changes to the Claim Now, Claim More Later strategy and the deemed filing rule apply to anyone who turns 62 in 2016 or later. This means there is still an opportunity for anyone age 62 or older by December 31, 2015. These individuals are presumably not impacted by this change and, therefore, can still file a restricted application under this strategy once they turn FRA.
As you can see, coordination of these two windows of opportunity are going to be quite complicated and tricky. A more comprehensive explanation of the changes and its impact will be discussed in an upcoming Advanced Planning Bulletin article.
On a Positive Note....
The Medicare part B premium increase was also addressed in the Act.
There is a rule of law, known as the "hold harmless" rule that says that if you are on Medicare and taking your Social Security benefits, your Medicare Part B premium cannot increase any higher than the increase in your Social Security benefits. Right now, the Medicare Part B premium is $104.90. Because there is no COLA for 2016, for most retirees receiving both Social Security and Medicare, there will be no increase in their Part B premium.
There are two groups of people who fall outside this "hold harmless" rule. The first group is the Income Related Monthly Adjustment Amount (IRMAA) group. Those are the people Medicare considers high income beneficiaries, which Medicare defines as a single filer with greater than $85,000 in modified adjusted gross income (MAGI) and married filing jointly filers with greater than $170,000 in MAGI. Their Medicare Part B premium is going to go up regardless of whether they are receiving Social Security.
The second group are those that aren't in the IRMAA category, but are taking Medicare and have NOT yet started to get a Social Security check. (This includes those who have filed and suspended since they're not getting a check yet from Social Security.) These folks are privately paying for their Medicare Part B premium. They also do not fall under the "hold harmless" protection.
It was anticipated that for folks not falling under the "hold harmless" protection their Medicare part B premium would go up $54 per month. Fortunately, under the Act, the increase was just 15% (increasing to about $123.00 from $104.90 per month).

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