A Social Security Change You Must Know About
Is your company prepared for the changes brought on by the Bipartisan Budget Act of 2015?
This new law changes how much benefit can be claimed from Social Security. And it has the potential to affect retirement investing for many Americans, including those you employ.
The act, which went into effect in May 2016, eliminates a popular investment strategy. The option to file and suspend benefits is gone.
Goodbye to the Spousal Benefit
In the past, married couples were permitted to claim more benefits by having a 66-year-old spouse first file and then suspend benefits. The younger spouse was then eligible to draw a spousal benefit, allowing the couple to enjoy extra income while simultaneously earning 8 percent on the deferred Social Security until the older spouse reached age 70.
That approach disappeared in May, and your employees ought to be aware of the change. Although the bill passed in 2015, some former beneficiaries were grandfathered in in early 2016. The only couples eligible to file and suspend were those who met both of the following criteria:
- At least one spouse was born on or before May 1, 1950, and turned 66 before May 1, 2016, and
- Managed to file and suspend by that date.
Yanking Restricted Applications
The act also removed what were known as restricted applications. Until May, workers between the ages of 66 and 70 were eligible to file such applications for benefits on behalf of a spouse while deferring their own benefits until turning 70. At that point the elder spouse was free to switch to greater benefits. That option disappeared on May 1.
No More Lump Sums
Finally, the act removed a valuable option for workers who used it as an emergency fund. Formerly, workers who had filed and suspended benefits were permitted to unsuspend and receive a retroactive lump sum payment on demand and in full of all benefits accrued. This has often been used in events like a big change in health or a sudden medical bill.
That route is now gone. Any worker now electing to unsuspend benefits will indeed receive monthly payments as before, but will receive no retroactive lump sum.
Whether your employees have filed an eligible claim under the old rule or not, this change to Social Security benefits affects them. Here are some things to keep in mind as your company moves forward with retirement planning for your employees.
- Don’t put the cart before the horse. This is particularly important for your younger workers. Remind your team of the importance of having a solid financial foundation before worrying about investing for retirement.
- Keep on avoiding or eliminating all debt. No matter which approach your workers take to retirement investing, it’s all for naught if they’re still making big monthly debt payments.
- It’s essential that workers have a big and liquid emergency fund to get them through tough times.
- The passage of this law is a great time to make your workers aware of your 401(k) offerings if they aren’t already familiar.