Strategizing Social Security

Strategizing Social Security

“I’ll go to Congress and fight for you.”

capitol-1024x768How many times have we heard that from our politicians? There’s a lot of tough talk on the floor of the House of Representatives, but how often do these officials actually back it up? Almost never. But that wasn’t always the case.

On Feb. 15, 1798, U.S. Reps. Roger Griswold of Connecticut and Matthew Lyon of Vermont showed their true grit. On the floor of Congress that day, Griswold started taunting and insulting Lyon. “Have you ever even been in a fight” goaded Griswold. Defending your manhood was a big deal on the floor of Congress back in those days, so Lyon replied that he had been in many a fight with people from Griswold’s state, and then he spit tobacco juice in Griswold’s face. The fight was on! Griswold immediately rushed Lyon with a hickory walking stick. Lyon rushed for a nearby fireplace and equipped himself with a pair of iron tongs. The Vermont and Connecticut delegations cheered their men on. Cooler heads soon intervened and separated the brawlers. But, the fight continued in the halls outside the House chamber. The episode historically became known as the “Royal Sport.” “I’ll fight for you” had some meaning back in the day.

On Nov. 2, President Barack Obama signed into law the Bipartisan Budget Act of 2015. The law puts off a “fight” over federal spending and debt until after next year’s presidential and congressional elections.

The Bipartisan Budget Act of 2015 is full of varied material. Notably, it has many implications for retirees or those getting ready to retire.

The bill will eliminate sophisticated Social Security claiming strategies such as “File-and-Suspend” and another similar Social Security claiming strategy known as “Restricted Application.”

The ability for a client to file-and-suspend will be eliminated 180 days after the bill was signed into law. Thus, by May 2016 the file-and-suspend strategy will no longer be available to people who are not already using it.

How does the strategy ” File and Suspend” work? Once a filer reaches 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 percent delayed credits or an increase in pay each year. Simultaneously, 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.

The new law 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.

Both the file-and-suspend and restricted-application strategies will be history. Social Security claiming decisions will continue to be important, but many strategies are evaporating. Like congressmen who fight for you, file-and-suspend and restricted application strategies will be relics of the past.

Thankfully, there’s some good news to come out of the budget deal for some retirees. Because of a quirk in Medicare and Social Security law, premiums for millions of older people were set to increase in January, but the law will stall that increase.

Most retirees receive Medicare Part A for free. Medicare Part B, on the other hand, comes with a price. Approximately 70 percent of Americans covered by Medicare Part B pay monthly premiums of $104.90, deducted directly from their monthly Social Security benefits. I refer to this 70 percent set as the “Hold Harmless” assembly. Under Social Security’s “hold harmless provision,” participants cannot see a decrease in their Social Security payments.

Since there is no cost-of-living increase for their Social Security in 2016, then there’s no legal way to increase their Medicare Part B premiums for any shortfalls to the system. By default, the other 30 percent of Medicare Part B participants that are not members of the “Hold Harmless” assembly would have to carry the burden. Based on the rising cost of health care, Medicare Part B premiums were projected to increase by 50 percent.

The new legislation reduces this impending increase. Under Bipartisan Budget Act of 2015, the U.S. Treasury will loan billions of dollars to Medicare to help meet anticipated increase in expenses. This loan will shrink Part B premium increases for those not benefited by the “hold harmless” provisions.

And there’s more interesting stuff in the Bipartisan Budget Act of 2015. Just when you thought Congress was fighting for you, the law snuck in a provision that allows for automated phone calls sent directly to your mobile phones from debt collectors working for the Internal Revenue Service. I guess that’s Congress calling to fight for you.

This article originally appeared in the Old Colony Memorial on November 25, 2015

billBill 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.