Changes to social security affect retirement lifestyles

In October, Congress restricted the use of the so-called “spousal benefit” which allowed one partner to file for and receive their monthly benefits, the other to wait and build retirement credits and during that time receive a payment worth about half of what their partner receives.

Depending on income and, of course, life span, the tactic could increase the couple’s benefits by as much as $30,000 or more over their lifetime.

“It’s funny, a lot of people act like this was a big surprise. It wasn’t. It was on the table and when you look back on some of the rhetoric, when they [Congress] call something a loophole, it’s usually a sign that they are looking at it,” said David Shotwell, a certified financial planner with Rutter Baer Inc., based in Lansing.
But he added that timing is important. “For the most part when you do planning for folks close to retirement, you don’t expect there to be changes to their Social Security.”

For Craig Stiles, a financial adviser with Merrill Lynch, less than 1 percent of his clients qualified for or used the spousal deduction.

“We’ve been hearing about this being on the chopping block for a year,” he said, adding that he was not speaking about those he counsels and not for his firm.

Yet he acknowledges that for some clients transitioning into retirement, changes in Social Security laws are significant though he, like other financial advisers, sees the payments as only part of a portfolio.

Stiles, Shotwell and other area financial and retirement advisers say the current system is financially unsustainable as Baby Boomers retire and contributions from a smaller workforce are unable to sustain the system’s long-
Term obligations.

The use of the spousal benefit was curtailed as a provision of the Bipartisan Budget Act of 2015. It restricts its use to those born before Jan. 1, 1954, an acknowledgment that those approaching full retirement lack the flexibility to alter
Their plans.

“This is something that is going to affect people’s lifestyle. It whittles down now the few options you have,” said Joseph Gazall, a financial consultant with the Michigan Financial Group.

He framed the challenge of integrating Social Security into a retirement plan as highly individual, dependent on assets like 401k savings, longevity projections, tax liability and other income streams.

Financial advisers expect the government to raise the cap on Social Security contributions, now set at $118,500 and to continue raising the retirement age for full benefits. For those born in 1960 or later, full retirement benefits now begin at age 67.

“Letting the full retirement age continue to move out must make sense,” Shotwell said. “If you look at the change from 65 to 67 compared with the change in life expectancy, there is
No comparison.”

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