The Bipartisan Budget Act of 2015 makes significant changes to Social Security that impact the payments you will qualify for in retirement. The law eliminates several Social Security claiming strategies, which the bill refers to as “unintended loopholes,” that some married couples used to increase their benefits. Here’s how the Social Security rules have changed:
Dependents can’t claim payments if you suspend your payments. In the past, once you reached full retirement age (FRA) you could claim Social Security benefits and immediately suspend them, which allowed a spouse and sometimes dependent children to claim payments based on your work record while you continued to accrue delayed retirement credits that allowed your benefit to grow 8% per year to age 70. Retirees continue to be able to suspend their payments, and when they resume them they will be paid going forward at a higher rate, due to the accumulation of delayed retirement credits. However, the new legislation changes the rules so that if you suspend your Social Security payments, the payments your spouse or children receive based on your work record will also be suspended until you start your payments again. This rule change applies to benefit suspensions submitted beginning in May 2016, so if you’re still eligible to use this file-and-suspend strategy and it’s part of your financial plan for retirement income, you have a short window to start. If you wait past May, the ability to claim and suspend and have a spouse collect benefits will be gone.
No more double claiming. Some dual-earner married couples who are 66 or older have been claiming Social Security benefits twice. The lower earner would first restrict their application to “spousal benefits only” in order to collect spousal payments worth half of the higher earner’s benefit amount, and then later switch to payments based on their own work record, which would have grown due to delayed claiming bonuses. People who turn 62 in 2016 or later will no longer be able to switch between these two types of payments. If you weren’t 62 by the end of 2015 you’re not eligible for the restricted application (applying for spousal benefits only) anymore. Instead, you can either restrict your benefit to spousal payment only, or claim your benefit on your own work record, typically whichever is higher.
Anyone age 62 or older at the end of 2015 is spared this clampdown. Since the option to file a restricted application for only spousal benefits is only available under prior law at full retirement age and the rules take effect only for people who are currently under age 62, this option is effectively phased in over a four-year period. For people born Jan. 1, 1954 or earlier the option to file a restricted application for only spousal benefits will remain available.
Notably all of these changes concern the interaction between retirement and spousal benefits, and do not include widow benefits. Widows and widowers inherit their spouse’s benefit payment when it is higher than their existing benefit, and widow/ers will continue to have the opportunity to restrict an application to only widow or only retirement benefits and later switch to their own benefit.
Keep in mind: All workers always have the option to increase their monthly Social Security payments by delaying claiming up until age 70. The real advantage is still there, which is being patient.