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Social Security Grace Period Ticking Down

Many people planning for their future retirement were given a shock with the passing of the government’s two-year budget deal at the end of October, as we previously reported on. By increasing government spending and suspending the debt ceiling so as to avoid a default, Social Security was tapped as one of the areas where savings could be made.

Two key changes were made: no more double claiming (where some dual-earner married couples who are 66 or older have been claiming Social Security benefits twice) and dependents are no longer able to claim payments if you suspend your payments. Previously, you could claim benefits and immediately suspend them, allowing a spouse to claim payments based on your work record while you continue to accrue delayed retirement credits, allowing you to claim larger payments later on in retirement.

The legislation is seen by the government as closing exploitable loopholes in the Social Security process and will come into effect on April 30th 2016. That means older workers who still want to use the file and suspend can still do so until early next year.

Social Security's sources of income include its dedicated taxes (payroll taxes and taxes on Social Security benefits), interest on the Social Security Trust Fund, and transfers from the general fund of the Treasury.

In the future, the only use of the file and suspend strategy will be for those who claimed reduced benefits early who want to increase their future benefits. By suspending their benefits at 66 or later, it will allow them to earn delayed retirement credits of 8% per year up to age 70, increasing not only their retirement benefits but the potential survivor benefit for the spouse they may leave behind.

It is crucially important right now, before these new changes take place, that people consider their Social Security options and take advantage of this grace period while they still can, if they’re able.

In 1940, the life expectancy of a 65-year-old was almost 14 additional years; today it is almost 21 years.

With these previous Social Security strategies now being made redundant; are there any potential new strategies which people should be aware of?

While there is no broad and wide-ranging strategy that people can avail themselves of once these new changes are implemented, the importance of Social Security optimization and getting the most out of your benefits remains greater than ever.

Especially now, it is important that you sit down with your money manager, and figure out how your retirement plan has changed now and what decisions can be made to ensure that you can take the best advantage of the retirement you’ve been working toward.

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