Upcoming Changes to Social Security Benefits
At the beginning of November, President Obama signed into law some sweeping changes regarding Social Security benefits, marking the most significant reforms since 1983. As part of the Bipartisan Budget Act of 2015, the new laws were intended to prevent a government shutdown, but they will also end popular Social Security claiming strategies for couples when they become law next year. Both the “file and suspend” and “restricted application” benefits will be eliminated within the next six months. These sudden changes may leave a lot of pre-retirees wondering what the options will be for their retirement years. And the consequences may be particularly difficult for some, as the impact for divorced individuals will be similar to married couples.
“File and Suspend” Elimination and What It Means
The elimination of the “file and suspend” benefit will take place as of May 1, 2016 and will leave many scrambling to make retirement decisions quickly. Under current rules, once you reach full retirement age and are eligible for Social Security benefits, you can file for your benefits, but request they not be paid to you. You can then receive delayed credits, allowing your benefit to grow by 8% per year, plus any cost-of-living adjustments. You can also allow other family members to claim a benefit based on your earnings history, simply by filing. Traditionally, this has been a popular option for couples since one spouse can file without receiving payment, the other can then receive spousal benefits, and the benefit can continue to grow over time.
After May 1st under the new law, family members can no longer receive benefits based on your employment record if you just merely file – you must actually receive the benefits yourself without any delay. Younger workers (born on or after January 2, 1954) can still suspend their benefits once they reach retirement age, but family members cannot collect benefits on their earnings during that time.
“Restricted Application” Elimination and What It Means
Another popular strategy for couples under the present law is “restricted application”, which essentially enables you to receive a spouse’s Social Security benefit, but not your own. Currently, this allows you to receive some Social Security benefits through a spouse, while your own benefits continue to rise by 8% per year until age 70. Under the new law, people who are already collecting on their spouse’s benefits can continue and switch to their own benefits, as long as they do so by age 70. For those who are younger than 62 by the end of this year, “restricted application” will no longer be an option.
If you are already of full-retirement age and using either “file and suspend” or “restricted application” strategies, you will be grandfathered and nothing will change. However, it is important for those who qualify and wish to take advantage of either benefit to look into it now before it’s too late.