For those approaching retirement, a shift in strategy
November 20, 2015, Troy, Mich. – Those soon reaching retirement age may want to rethink their Social Security strategy, as loopholes relied upon by thousands are set to close thanks to the newly approved Bipartisan Budget Act of 2015.
Starting in 2016, the ‘file and suspend’ and ‘restricted application’ loopholes will close. File and suspend allowed people to let their benefits grow while gaining access to family benefits based on their work record.
Filing a restricted application could be done after a spouse files (even divorced spouses, and even if they suspended), in order to claim a partial payout based on their spouse’s Social Security benefits while their own benefits continued to grow. Closing both means earning less Social Security benefits than what was previously allowed.
A 1954 cutoff
The new restricted application rules apply to those who reach age 62 after 2015, so people born before 1954 can still pursue these strategies.
Instead of relying on file and suspend or restricted application tactics, those planning for retirement should consider a plan B, which should be strategic and can even be creative.
Leon LaBrecque, JD, CPA, CFP®, CFA, managing partner of LJPR Financial Advisors in Troy, says, “Having your own plan B has never been more important. What we’re seeing and will continue to see is changes in tax code that will affect us all one way or the other. Having a solid strategy is key to living a comfortable and secure retirement.”
Closing these Social Security loopholes will save the government the equivalent of change in the couch cushions in relation to the gold I’d like to see them going after – corporate tax and other loopholes worth literally trillions
LaBrecque suggests two tips that could replace income from the closed loopholes:
- First, a social security tip: Delay drawing benefits until age 70. With married couples and Social Security, the surviving spouse gets the greater of their benefit or the deceased spouse’s benefit. Delaying the higher earner’s benefit draw until age 70 increases benefits by 8 percent a year, but also increases the lower earner’s benefit by 8 percent per year. Everyone ends up getting more.
- Second, an IRA tip: Opt to take only 3-4 percent distribution, and wait until you are 59 ½ or older. Keeping distributions (withdrawals from the money you’ve been saving) modest at 3-4 percent means you’ll live off of your growth and not dip into the principal, stretching the years you’ll have money to live off of. Waiting until after age 59 ½ means you’ll avoid a 10 percent penalty.
According to the New York Times, the elimination of both loopholes will save about 0.02 percent of the taxable wages and self-employment income subject to Social Security taxes over the next 75 years (from Social Security Administration estimates). That is a small fraction of the program’s long-term deficit of 2.65 percent of taxable payroll. These changes will save about 0.04 percent of the total taxable earnings for the Social Security trust funds over the next 75 years, or about $9 billion.
“Closing these Social Security loopholes will save the government the equivalent of change in the couch cushions in relation to the gold I’d like to see them going after – corporate tax and other loopholes worth literally trillions,” said LaBrecque.
For more information or to evaluate your own retirement strategy, contact your own advisor or LJPR Financial Advisors at ljpr.com or by calling 248.641.7400.
About LJPR Financial Advisors
LJPR Financial Advisors is a Michigan based company headquartered in Troy. LJPR is a fee-only independent wealth management firm specializing in individual retirement planning, investment management, executive financial counseling, nonprofit investment services, estate planning and tax planning. For over 26 years the team of professionals has been offering a comprehensive menu of fiduciary services. LJPR currently has over $716 million in assets under management as of 06/30/2015.