Did you know the Social Security law is about to change? We caught up with Senior Financial Advisor, Todd Criter, at Merrill Lynch to help us understand what this means and who should be calling their financial advisor, accountant or Social Security
office before May 2nd.

Q: What changes are being made to the Social Security law?

A: The Bipartisan Budget Act of 2015 includes provisions phasing out two Social Security claiming strategies, “file and suspend” and “filing a restricted application,” which many married—and divorced—couples have used to help boost their retirement income.

Previously, married couples–usually the higher earner–would “file and suspend” benefits. Their spouse would then be eligible to take spousal benefits. As a result, the suspended benefit would grow in value–about 8% a year. After May 2, 2016, you are no longer allowed to file and suspend benefits while allowing a spouse–or minor dependent–to claim benefits on one’s earnings.

The other method impacted by the new law was known as “filing a restricted application.” This allowed a person of full retirement age –currently 66 years old–to file for spousal benefits and delay their own benefit. This would allow one’s own retirement benefit to continue to grow. Under the new law, a person cannot claim a spousal benefit while deferring and receiving delayed retirement credits on their own benefit.

Q: What actions should I take before the law goes into effect?

A: It is important to remember that every situation is different–what may work for one couple is not the same for all couples.

However, if you were born before May 1, 1950, you might consider filing and suspending your Social Security benefits, but this would have to take place by April 30. Many of my clients are doing this right now, which will allow them to suspend taking their benefits and instead allowing them to grow until they decide to begin collecting.

The opportunity to file a restricted application will continue to be available to anyone who was 62 years old or older on January 1, 2016. This allows you to collect spousal benefits starting at 66 years old, while you hold off on collecting your own benefits until you are 70 or decide to do so.

Q: If I do a “file and suspend,” am I prevented from receiving the money until I reach full retirement age?

A: No, if you are grandfathered in under the new law you can wait until you’re 70 to receive your benefits or take a lump sum payment prior to turning 70.

Q: And are there any exceptions for divorced couples?

A: Yes, there are exceptions. If you are 62 years of age or older and haven’t remarried, you can file for spousal benefits, regardless if your ex has filed. However, your ex must be entitled to benefits; and your own benefits based on your own work record must be less than what your received as a spousal benefit

Q: I’m nearing retirement age. How will the changes to Social Security affect me?

A: If you are married and one of you is still working, that person may want to consider working for a few more years. This will not only build up additional savings, but retirement credits as well. Entering retirement with a clear picture of your finances is very important, so I would recommend that you speak to a financial advisor to help put together a plan for your expected future income and expenses that will address your goals and make sure you are prepared for a number of scenarios.

Q: What other strategies should I consider?

A: If you can no longer take advantage of these phased out strategies, it might make sense for the higher-earning spouse to delay receiving benefits until they reach full retirement age. Until then, the spouse can receive retirement benefits and request a spousal adjustment when once the other spouse reaches 70. However, this strategy is only advantageous if the spousal benefit is higher than your own retirement benefit at full retirement age.

Q: I’m still far away from retirement. What plans should I be making?

A: We, as financial advisors, cannot express enough how important it is to begin saving for retirement as early as possible in life. Remember that Social Security is a safety net, not a retirement plan. As one plans for retirement, it is important to know your options early. Often investors consider beginning to take payments early or before age 70. We work with clients and help calculate both the advantages and disadvantages of taking payments before age 70. Each client’s financial needs are different, but most often clients see the value in delaying benefits. If your employer offers a 401(k) plan with a matching contribution, you should seriously consider contributing the maximum amount allowed. You can also consider other retirement vehicles such as a Roth IRA, which also provides some tax benefits. This is a great time to reevaluate your retirement plan to make sure you have enough savings to not only live comfortably when you retire, but also to fulfill some of your life’s goals.

Todd Criter is a Senior Financial Advisor at Merrill Lynch in San Francisco

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