How Will New Social Security Rules Affect Your Retirement Plans?

social security rules, DuPage County Estate Planning LawyerThe Bipartisan Budget Act of 2015, which the President signed on November 2, 2015, contains multiple changes to payment strategies that many people utilized in determining when and how they would collect their Social Security retirement benefits. These changes eliminate "unintended loopholes" which ultimately financially benefited many claimants, and will particularly affect those who turn 62 years of age after 2015.

The first major change will be the elimination of double claiming. Many married couples—aged 66 years or older—have had the option of first claiming spousal payments (if the spouse was a higher earner) and then are able to switch to their own benefit amounts, which are now higher because they delayed in claiming. The longer one waits to claim his or her Social Security benefits, the higher monthly benefit amount will be.

For example, a wife may file for spousal benefit at age 62. When she turns 70, she then switches to her own retirement benefit, which has increased significantly from what her benefit amount would have been if she had claimed it at age 62. However, with the new changes, a person will need to choose one option or the other and will not be able to make changes to that choice later on. According to one analysis, there is a potential savings to the Social Security fund of $10 billion annually by eliminating this option.

Currently, if a person claims his or her Social Security benefit, but then suspends it, any dependent entitled to benefits would still receive those payments. Yet if the person is still working and wishes to continue to accrue retirement benefits, as well as receive the delayed benefit amount which will be significantly higher, he or she utilizes the file and suspend option, but his or her spouse continues to receive a monthly benefit check.

The Act removes that option. If a person suspends his or her benefits, dependent payments also stop and will not begin again until the benefit is activated again. This change will become effective in May of this year.

Changes to benefit and tax laws can be confusing to keep track of and understand how they affect your retirement plans, which is why it is important to consult with an experienced DuPage County estate planning attorney. Please call Stock, Carlson & Duff LLC at 630-665-2500 to schedule your consultation today.

Sources:

http://www.forbes.com/sites/janetnovack/2015/10/30/when-should-you-claim-social-security-the-answer-just-changed-for-some-boomer-couples/

https://www.ssa.gov/legislation/legis_bulletin_110315.html

Public Policy Changes May Have Negative Impact on Retirement Plans

IRA distributions, IRA wealth, Illinois estate planning attorney, reduce Social Security benefits, retirement plans, Social Security benefitsIf you are approaching the age of retirement, or are currently planning your finances for your golden years, you probably have been following a set plan. However, a recent article indicates a few proposed changes in the current public policy that are on the table for the 2015 fiscal year budget. And these changes could have a serious impact on retirement plans.

IRA Distributions

Currently, there are no required minimum distributions rules for ROTH IRAs. The pending change would reverse that by implementing required distributions after the owner is 70 ½ years of age. This can cause people to take out more money than they actually need instead of investing it. This has a trickle-down effect that includes higher taxation as well as a higher amount of Social Security being taxed.

Cap on IRA Wealth

Though the cap that is being proposed is substantial, it is still a cap. This change will impact only those that are used to a very high standard of living. The cap will be $3.2 million. Once that cap is reached, no further contributions will be allowed. The worrisome part is that the 401(k) and 403(b) is also included in the figure with the IRA. This would lead to a reduced amount of retirement savings for some.

Social Security Benefits

The proposed reduction of Social Security benefits could potentially be the most damaging as Social Security accounts for nearly 40 percent of retirement income. Possible changes include an extension of the retirement age as well as decreasing the monetary amount of the benefits. However, the greatest proposed change involves the claiming strategies for Social Security as the government is looking to "eliminate aggressive Social Security claiming strategies, which allow upper-income beneficiaries to manipulate the timing of collection of Social Security benefits in order to maximize delayed retirement credits." This could change the planning strategies that are currently in place for middle and lower class retirees.

These changes could significantly impact your retirement planning. Hence, this is why it is so important to meet with an estate planner regularly to review your documents and discuss trusts or other vehicles. For questions regarding the 2015 proposed public policy changes and how they can impact retirement plans, please contact an experienced Illinois estate planning attorney today.