On November 2, 2015 the Bipartisan Budget Act of 2015 was signed into law by President Obama. Intended primarily to keep the government from shutting down, the law also included some important changes to Social Security Benefits to reduce deficits and improve the program’s funding for future benefit payments.
Retirees who are already receiving benefits will see no changes. But, new claimants will no longer be able to “file and suspend” their benefits if they have not reached age 66 before May 1, 2016 and also acted to suspend benefits before that date. Retirees who want to file a “restricted application” for spousal benefits must be age 62 or older before January 1, 2016. Retirees within these age limitations are grandfathered within the old rules.
The new rules do not change the basic worker and spousal retirement and survivorship benefits that Social Security provides. But they do eliminate two options available when claiming benefits that were used by some married couples to increase their benefit payments.
The first option that will be eliminated allowed individuals to collect just spousal benefits while at the same time allowing their own benefit to grow by 8 percent per year. All one had to do to accomplish this was to “file” for social security benefits at one’s own full retirement age (age 66 for most presently nearing retirement) and then immediately “suspend” one’s application so that no benefits are received until they reach their highest value at age 70. The option to retroactively “unsuspend” any suspended benefits in order to receive a lump sum payment for the deferred amounts will also be eliminated.
The second option that will be eliminated permitted one spouse to file what was known as a “restricted application” for “spousal benefits” at the same time or after the other spouse’s filing date. This enabled a retiree to collect only a spousal benefit while their own future benefit (that could be claimed later) continued to increase.
New Rules:
Under the new rules, a retiree can only choose to collect either their “own” or “spousal” benefit. This eliminates the opportunity to collect amounts from both benefits. This change means that future retirees will lose the opportunity to receive additional income that can be more than $60,000 for some claimants. That is because under the new rules retirees who are eligible for a spousal benefit will also be deemed to have filed for their own benefit. It will no longer be possible to switch to a higher benefit at a later date.
Under the new rules, claiming benefits at full retirement age will benefit more retirees than waiting until age 70. Deferring benefits will essentially be a bet on having longer than average life expectancy to gain more total income. The elimination of the “file and suspend” option causes the length of time to increase before total benefits exceed the amount received from claiming earlier. For retirees who want to defer claiming until age 70, it will lengthen the break-even age from 80 to age 83.
The new rules do not change the continuing advantage of deferring benefits for the highest earning spouse, because it is now more likely than before that one spouse will live beyond age 90. The longer living spouse will still be able to claim a deceased spouse’s higher monthly retirement benefit for the remainder of his/her life.
The rule changes do reduce the choices available for claiming social security benefits. However, making the best decision still remains difficult and complicated. Receiving guidance from a financial advisor who understands the choices can be time well spent in making the best choices for you and your family.
Greg Tinaglia
(last updated 12.20.2015)