The Bipartisan Budget Act - What it Means for You
By David Smyth
Earlier this month, our government, which can never agree on anything, amazingly managed to find agreement among officials both Democrat and Republican, on something!
That something was, rather than cutting expenses, a decision to raise the debt ceiling instead, as we have in this country pretty much every years since 1776! Consumerism is the American way.
Now, we understand if this act was lost on you amid the furor over the Starbucks red coffee cups or the Denver Broncos' Aqib Talib poking someone in the eye! And speaking of Starbucks, whether or not they're trying to get rid of Christmas, I love to put up lights, say Merry Christmas to people and read the story of a baby in a manger. I also still get excited on Christmas morning about what Santa might have brought me! And this morning, standing in line at Starbucks, I was reminded of how fortunate I am to be able to afford that $5 cup of coffee! First world problems, right?
But back to the Bipartisan Budget Act of 2015, you might be wondering how it will affect you. Well, for years, there has been a Social Security loophole that has allowed spouses to claim and suspend their benefits. This is a strategy we have used with many of our clients to maximize their lifetime Social Security benefits. Typically, we can only use this strategy with clients couples who, from a cash flow standpoint, can afford to defer receiving their benefits until well after full retirement age (FRA), which for most boomers is around age 66, with maximum benefits kicking in at age 70.
Our advice, while mathematically correct, has not aligned with the message from the mainstream media that tells everyone they should claim Social Security as early as possible so that when they die early, they'll have gotten their maximum benefit.
When we've had this Social Security conversation in our conference room, I typically hear the words, "I want to take my Social Security as soon as possible so I don't lose it when I die young," and in the same breath, "I don't need life insurance because I'm going to live a long time." Think about that folks. No really - read that sentence again and think about it. As your financial planner, we can plan for you to die early, or we can plan for you to live a long life, using every asset you own. We cannot, however, efficiently plan for both!
All kidding aside, this Bipartisan Budget Act has simply eliminated a loophole that gave primarily wealthy Americans the ability to maximize their Social Security benefits. If you're of qualifying age, you can still take advantage of this option until May 1, 2016, when the file and suspend loophole will officially be closed.
So, what do we do going forward? There's no need to panic - we do have until May 1 to review options. Maybe we've already had this conversation with you as part of your pre-retirement plan and determined you can't take advantage of this loophole by May 1 of next year. If you're already using the file and suspend strategy or wondering if you can, we will be reviewing your individual options with you between now and the first quarter of 2016.
Interestingly, in light of these changes, the use of life insurance as a Social Security planning strategy is going to become even more important, as there's less wiggle room for error in planning for a worst-case-scenario early death in family.
If you have questions about this law or know someone who might need help navigating the changes, please, give us call or send them our way.