Social security fixes will be required as demographics (aging Baby Boomers) pressure the system. The nature of the fixes remains to be seen. Various options include: means testing, increasing retirement age, and reducing benefits.

The Secret Fix

The first “fix” was just issued. The “file and suspend” strategy is now history. Congress passed its elimination, and the President signed the Bipartisan Budget Act of 2015 into law on Nov. 2. The new regulations will take effect in April 2016. The speed and secrecy of this strategy elimination surprised many industry watchers. Usually these type of bills are discussed and debated before becoming law.

File and suspend’s rationale was to encourage seniors to continue working. Under file and suspend a person filed for their benefit at age 66 and suspended it until age 70, and this allowed their future benefit to increase by 8% each year. The spouse could then file for spousal benefits and receive half of his or hers benefit. It’s being eliminated because it is becoming a large burden on the Social Security system. Congress also needed to find a way to offset a huge increase in Medicare Part B premiums for individuals not yet receiving Social Security payments.

Is the IRA Stretch Next?

Rumored for elimination is the “stretch IRA” The current rules allow IRA accounts to be passed to the next generation while retaining tax deferral of distributions. This allows the tax savings to stay in the account and continue to compound over many years.

Demographics and fiscal arithmetic will continue to exert budget pressure. Don’t be surprised if the estate tax exemption is eventually lowered (currently at $5.4 million). At an estate tax conference I attended, the key note speaker noted that since 1990, there have been a dozen major overhauls to the estate tax regime. The future of the tax code is never certain and much will depend on the political landscape.

Jerry Matecun helps business owners and individuals to discover key retirement planning, income, and investment considerations vital to build and protect your wealth.  For a no cost, confidential conversation on how to plan for your financial future call or email Jerry at 949-273-4200, 616-499-2000, or jerry@compoundvalue.com

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