What Have They Done To My Social Security Ma?
On November 2, 2015 President Obama signed the Bipartisan Budget Act of 2015. With the stroke of a pen he and Congress eliminated some lucrative Social Security (SS) benefits that had been on the books for well over a decade. Here’s a brief summary on what has changed and who can still take advantage of the old rules
The biggest change applies to two working spouses, especially those close in age to each other. Previously the higher earning spouse could file for and then suspend his/her benefits, enabling the lower-earning spouse to start taking his/her 50% spousal SS payments at full retirement age (FRA, typically age 66). These spousal benefits could amount to as much as $60K in income over the four years before the lower-earning spouse turns 70. At the same time both spouses’ own benefits would earn delayed credits amounting to 8% per year. At age 70 each spouse could then start his/her own benefits, now paying 32% more each month (for the rest of their lives) than if they has started at FRA. Plus they get to keep the $60K previously paid out in spousal benefits. Under the new rules each can still wait until age 70 to increase their lifetime benefits through delayed credits, but they can no longer get the interim spousal benefits while waiting
Another change impacts individuals who filed and suspended to take advantage of SS flexibility. If at any time after their FRA and before age 70 they changed their minds about waiting, they could un-suspend their benefits and get a lump sum payout covering all the missed payments since FRA. (One trigger for such a change might be the discovery during that period that their health or other factors made it unlikely that they would survive past age 82, the statistical break-even point.) Alas, the new rules eliminate this “do-over” provision. From now on, once you file and suspend, you can’t go back (although you can still un-suspend at any time).
If your FRA is earlier than April 30, 2016 and you file and suspend before that date then you will be grandfathered in under the old rules. (For your spouse to be grandfathered in for the spousal benefits while growing his/her own benefits he/she additionally needs to have been born on or before December 31, 1953 and file a restricted application no later than his/her FRA).
There is no change to the rule that allows a spouse to collect half his/her spouse’s benefit if it’s greater than his/her own. And for the most part the new rules do not impact survivor benefits. There does appear to be a possible unintended consequence for divorced spouses, however. If your ex-spouse files and suspends his/her own benefits for the purpose of earning delayed credits, the new legislation as written locks out your ability to collect spousal benefits while his/her benefits are suspended. This may require additional legislation to correct.
The following are answers to some common questions you might have.
Why were these changes made? (1) To save the government money. (2) Because the government concluded that these particular loopholes primarily benefitted wealthier recipients.
What impact will this have on my retirement plan? If your plan included the additional revenue from following these claiming strategies, you or your financial planner will need to update it.
What additional changes can I expect from government action? God only knows.