On Monday, November 2, 2015, President Barack Obama signed the Bipartisan Budget Act of 2015. This new law contained several provisions, but one specifically affects Social Security claiming strategies, and these changes could drastically alter the Social Security filing tactics many retirees had planned.

Even though these changes might tempt people to think their old plans have been rendered irrelevant, it’s important not to throw out the baby with the bathwater but instead put the changes in perspective.

The important consideration is that Social Security as a longevity hedge will remain a cornerstone of many retirees’ financial futures. The law may not change your clients’ benefits as drastically as you think, and it’s still important to pursue a filing strategy that gets investors the largest overall benefits. And finally, in the long term, further changes to the Social Security system are likely to come more slowly than they did in 2016. 

Understanding The New Law

There are two major changes to Social Security benefits under the new law. The first is your clients’ ability to file a “restricted application,” which is now limited to filers who were at least age 62 at the end of 2015 (born in 1953 or earlier). A restricted application allows a client to first claim benefits from a spouse for a time (typically between full retirement age and age 70) and delay his or her own retirement benefit until age 70 to earn delayed retirement credits of 8% per year. But for folks born after 1953, this option no longer exists.

If you were born in 1953 or before, to submit a restricted application you must be at least full retirement age. That would be age 66 for anyone born between 1943 and 1954. 

The second major change affects people who planned to use a “file and suspend” strategy. This tactic has allowed workers, once they have attained full retirement age, to file for benefits but not actually receive anything. The result before now has been this: 1) The worker’s own benefits have continued to earn delayed retirement credits of 8% per year until the worker was age 70, and 2) Because the worker’s benefit record had been activated, any beneficiaries eligible to claim benefits (i.e., spousal) could have begun collecting those dollars.

The new law changes all that. Family members (other than divorced spouses) are no longer able to receive benefits based on the earnings of workers with a suspended benefit. This part of the law takes effect April 30, 2016. The good news is that anyone who was already taking advantage of this strategy before the deadline will not be affected. 

Who’s Impacted And Who Isn’t? 

Table 1 summarizes who is (and isn’t) impacted by the new law

The effects detailed in the table are separated into three categories:

1. Not Impacted: Your client’s filing strategy is not affected by the new law changes. 

Note: If your client hasn’t filed for benefits and falls into this category, he or she may have to implement the strategy before April 30, 2016, to retain full benefits.

2. Impacted: Your client is no longer eligible to take advantage of the “file and suspend” and “restricted application” strategies.

3. Variable Impacts: The impacts to your clients’ strategies differ according to their ages and primary insurance amounts (the amounts they are eligible to receive at full retirement age). 

Note: This variability is complex. Encourage clients to contact you to discuss their unique collection strategy. If clients are 66 or older by April 30, 2016, they may need to take action before this deadline.