Could Changes to the Social Security Rules Now Benefit Younger Americans Later?

Social security fund“As much as I hate to admit it, I don’t think Social Security ever meant for these rules to [be used] that way,” says Mike Piershale, president of Piershale Financial Group in Crystal Lake, Illinois.

The federal budget agreement that President Obama signed into law November 2, 2015, may be a strong sign that Congress has finally accepted the need to work together to reform some of the rules for Social Security. The bill puts an end to two Social Security strategies that allowed spouses to maximize their benefits – a kind of double dipping of the higher wage earner’s pension benefit. The strategies were worth tens of thousands of dollars over the lifetime of some couples; put another way, an end to these strategies means many millions of dollars will be retained by the Social Security Pension Fund perhaps allowing this program to remain viable for years longer than currently projected.

The rule has always been that the spouse of a worker cannot claim a spousal benefit unless the worker has applied for Social Security benefits. However, there is a loophole in the rule known as 'File and Suspend' that worked in this manner. Under the old rule, the spouse was able to receive their spousal benefit despite the suspension. In that way, the higher wage earner could continue to accumulate credits up to age 70, resulting in a greater Social Security pension check for that spouse later while immediately collecting a spousal benefit check during the suspension period. 

With this change in the rule, now a spouse cannot begin receiving benefits until the worker is actually receiving benefits, too. Workers can still file and suspend, but spouses (or other dependents, including minor and disabled children) cannot receive benefits during the suspension. The law will take effect on April 30, 2016, but it does not affect workers who have already filed and suspended benefits. Workers who are at least 66 or will turn 66 before the effective date of the law may still file and suspend in order to trigger benefits for their spouse.

The law also changed another rule which was a little more complicated.  Imagine that you are the larger wage earner and that you and your spouse can both claim your social security benefits.  In a strategy known as 'Claim Now, Claim More Later', the spouse with a lower benefit files for Social Security based on their work history while you, the higher wage earner, claim a spousal benefit. Why? Because the loophole allowed you to continue to accumulate credits under your own Social Security until at 70, when you would claim the maximum amount of your retirement benefit and stop receiving the smaller spousal benefit.  In other words, with this strategy both spouses were receiving a check from Social Security until the larger wage earner turned 70 at which time one of their two checks became even bigger.

So, here is how the changes in the rules will effect Americans. If you were 62 or older at the end of 2015, you will still be able to choose which benefit you want at your full retirement age, in other words, you are ‘grandfathered’ under the old rules. However, workers who were not 62 by the end of 2015 must adhere to the new rules when applying.  Could these new rules change your retirement plans?  Consult your Elder Law Attorney or financial advisor to determine if you should take any action before the new rules become law.

Reference: US News & World Report (December 4, 2015) money.usnews.com/money/retirement/articles/2015/12/04/say-goodbye-to-the-social-security-file-and-suspend-strategy


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