November 4, 2015 
An Accidental Loophole Gets Closed

T he just-passed Federal budget will eliminate a Social Security benefit claiming option that affluent people have been using over the past 15 years. For dual income couples, the change could mean more than $100,000 in foregone benefit payments. 
We call it the closing of the accidental loophole that was created in 2000 when President Clinton signed into law some changes to the Social Security system.   
The eliminated strategy was to "file and suspend" (for your own benefits) while also filing for a spousal benefit (called a restricted filing). This allowed a married couple to delay taking their own benefits until age 70 - and seeing those benefits expand by 32% over a four year period - while also receiving a spousal benefit (1/2 of the spouse's full benefit) from each other. It was e ffectively a "get paid to wait" strategy.  

Dual high-income couples of a similar age, born after 1950, will be most affected by this change. But even similarly aged couples with a large variance in benefits will lose out too - the lower earning spouse won't be able to claim spousal benefits until the higher earning spouse begins taking benefits too. 
Current Social Security participants utilizing the restricted benefit option will be grandfathered so they'll be able to continue receiving spousal benefits (and switching to their own benefit at age 70 it's higher). The grandfather "window" will remain open for six months so that a few eligible (lucky!) people can still get access to the old benefit program.
Sound complicated? It is! We've simplified the story (a lot) to try to give you the highlights. So if you think you might be affected and want to know more, give us a call. We will be happy to discuss in detail with you and to apply the new law to your current situation.

[Dave's note: in my own case, this change will probably lower our Social Security benefit by about $80,000. But I'm not surprised at the cut; this is one of those programs that seemed too good to be true.] 
The CAVU Team
David Sylvester, CFA, CFP®                                 
Founding Principal    

Nick Foy, CFP® 
Portfolio Manager             

Hilary Disher, CPA (non-active)
Tax Strategist
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CAVU Wealth Advisors LLC