Nearly 1.5 million baby boomers have till April 29 to decide whether to file and suspend their Social Security benefits, or to suspend if they have already filed, according to Boston University Professor Laurence Kotlikoff.
This is due to the budget bill that was signed into law in early November that shut down the popular "file and suspend" Social Security benefit claiming strategy.
There is a grandfathered period until the bill is enacted on April 29 where file and suspend is still in effect — which means a good chunk of boomers (those who will turn 66 by April) need to act quickly.
The new law eliminates auxiliary benefits given or received for those whose retirement benefits are in suspension, unless suspended by or on April 29.
"The new law is a little tricky to understand," Kotlikoff said during a webinar hosted by the Financial Experts Network. "It's eliminating auxiliary benefits, like spousal benefits or widow's benefits or child benefits, including disabled child benefits, for people who put their retirement benefit in suspension."
The new law also extends "deeming" from full retirement age through age 70 for those who turn 62 after Jan. 1, 2016 — instead of only applying before full retirement age.
This means that a person can no longer file for spousal benefits at full retirement age while allowing their own retirement benefit to continue growing. Instead, someone claiming a benefit before full retirement age must file for all benefits for which they may be eligible.
The new law also eliminates the option to recover, in a lump sum, suspended benefits for those who don't suspend by or on April 29.
Kotlikoff laid out some "secrets" to maximize a client's Social Security benefits under the new rules.
Who Can Suspend, Who Can Collect
Secret 1: File and Suspend Still Works for Some
If a client is married, he or she may still be able to use the file and suspend strategy.
"There are millions of people who can still take advantage of this file and suspend strategy," Kotlikoff said.
There are two conditions that have to be satisfied, he said. One spouse must have been born before May 2, 1950, and the other spouse must have been born before Jan. 2, 1954.
"One person has to be pretty close to 66 or over 66 to file and suspend," Kotlikoff said. "And the other person has to be over 62 by the end of this year in order to not be deemed to be also filing for retirement benefits by the time they reach full retirement age and be able to just take their spousal benefit."
Secret 2: Older Divorcees Can Still Collect
Clients divorced after a marriage of at least 10 years may still be able to collect a full spousal benefit.
Divorced clients who were born before Jan. 2, 1954, with an ex-spouse at least 62 years old can file and suspend if the divorce occurred two or more years ago or the ex has filed for his or her retirement benefit, Kotlikoff said.
"The basic message is, anybody who's 62 by the end of this year who's divorced will likely be able to collect a full spousal benefit — these other conditions again have to be met," Kotlikoff said.
Secret 3: When to Apply for Spousal Benefits
For a married couple that isn't exempt from the new law because both spouses are too young, and if the elder spouse is a very low earner compared to the younger spouse, Kotlikoff suggests it may be best for the younger spouse to file somewhat before 70 to activate their spousal benefit.
Secret 4: Birthday Penalty
A client can still suspend their retirement benefit no matter their birthdate. There's a catch, though, if the client isn't 66 by or on April 29.
"Even if you're too young to reach 66 by the end of April, you can still suspend your retirement benefit regardless of what your birthdate is, it's just that you can't provide or receive any benefits to relatives on [your] work record," Kotlikoff said.
