How Congress Just Changed Social Security
The “Bipartisan Budget Act of 2015” has been approved by the House of Representatives, the Senate and was signed by President Obama on Monday. In this Viewpoint, Financial Planning Specialist Eric Ross sheds light on how these changes could impact you.
The Bipartisan Budget Act of 2015 has significant implications for the Social Security system, as it eliminates some increasingly popular claiming techniques. The “file and suspend” and “restricted claim for spousal benefits” techniques will no longer be available as part of so-called “claim now – claim more later” strategies. The changes will also have implications for the benefits available to divorced spouses and dependents.
Key Highlights (Section 831 of Bipartisan Budget Act of 2015)
What Remains the Same?
- No impact for beneficiaries if the higher-earning spouse reaches FRA in the next six months AND dependent spouse reaches age 62 by the end of 2015.
- Anyone, regardless of when they reach age 62, can continue to suspend benefits and earn delayed credits to age 70.
- Legislation does not change existing rules for surviving spouses entitled to benefit on deceased spouse’s earnings record, thus allowing for the surviving spouse to continue earning deferred credits to age 70 while collecting on deceased spouse’s earnings record.
On May 1, 2016, file and suspend rules change.
What Changes?
- Anyone younger than 62 at the end of 2015 will not be permitted to collect spousal benefits-only, if they are entitled to benefits based on their own earnings record. If entitled to both a spousal benefit and benefit based on their own earnings record, the beneficiary is deemed to file for both benefits and will receive the greater of the two amounts.
- This same rule applies to divorced spouses (if married at least 10 years).
- No one will be able to collect benefits on the primary beneficiary’s record (i.e., spousal or dependent) when the primary beneficiary suspends benefits.
- The only use for “file and suspend” will be for an individual who claimed benefits initially and later changed their mind, deciding instead to delay.
While the original legislation passed by the House did not include grandfathering provisions, fortunately, the version that ultimately made its way to the President allows those currently employing these techniques to continue their benefits uninterrupted.
Additionally, the grandfathering provisions will also apply to anyone implementing the “file-and-suspend” technique up to 6 months after the legislation being signed into law. Separately, the “restricted-claim” technique will be available to those who turn age 62 before the end of 2015.
While these changes limit the flexibility of Social Security claiming strategies, there are some positive takeaways from this budget deal:
- Congress is demonstrating some willingness to address the long-term health of the Social Security system.
- A reduction in Social Security Disability Insurance benefits scheduled to go into effect in 2016 has been deferred.
- Widows and widowers will continue to have wide flexibility in filing options.
- While the changes to Social Security eliminate certain creative claiming strategies, they do not impair the core benefits of the program.
The team at Truepoint is carefully evaluating the implications these changes will have on our clients. We will contact you directly if adjustments are needed to your unique claiming strategy. In the meantime, we are available to discuss questions you may have about how these changes relate to your personal situation.
