Obama budget proposes change to timing of Social Security benefits

President Barack Obama’s proposed 2015 budget, released last week, could impact the way some retirees claim Social Security benefits.

As first reported by InvestmentNews on Friday, a sentence more than halfway through the 214 page document reads that the budget proposes to eliminate strategies for claiming Social Security benefits that allow beneficiaries to maximize delayed retirement credits.

The longer one delays receipt of Social Security benefits, for example, the more the income grows.  Someone claiming at 62, before the retirement age of 66, would receive 75 percent of their benefits; someone waiting until 66 would collect full benefits; and someone able to put off receiving benefits until 70 would see their income stream grow by 8 percent a year for the four years after 66, far greater than the return guaranteed by any investment.

There is also the “claim now and claim more later” strategy used by spouses, where the older spouse can delay receiving benefits until turning 70, receiving the higher income stream, while the younger spouse claims spousal benefits until reaching 70, at which point he or she claims their own enhanced income flow.

It’s not clear which strategy the budget targets, now are  there any clear provisions for implementing changes, leaving experts divided on the possible implications.

But investment advisors need to be aware of any fluctuations in policy, especially as a growing number of clients are comprised of baby boomers planning for Social Security.

Meanwhile, as immediate annuities start to gain in popularity, they could help to bridge a possible gap caused by a change in strategies available for claiming Social Security.

While Social Security, if delayed, can give you an above market rate, annuities are still almost priced at a fair market rate.

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