Quiet Changes to Social Security Could Have Big Impact
If you are at or near retirement age, you are likely aware there will be no cost-of-living adjustment to Social Security benefits for 2016. In other words, your benefits will remain the same for next year. As a result, many other numbers likewise did not increase, as indicated on the Social Security Administration Press Release. This is only the third time in 40 years the payments will not adjust for inflation. (This also happened in 2010 and 2011).
Another change affecting those close to retirement age is the elimination of the file and suspend program. This was a quiet change. It has not been the subject of a press release or official statement, discussion has only been in news stories. The change was part of the Bipartisan Budget Act of 2015 signed earlier this month. The section making the mentioned changes is entitled, “Closure of Unintended Loopholes.” The title seems to provide some insight into Congress’s objectives.
The file and suspend option was and still is used by couples when one spouse, typically the higher earner, files for benefits but then suspends receiving his or her own benefits. This allows the other spouse to file and receive spousal benefits based on the higher earning spouse’s record for a certain number of years while the higher earning spouse delays benefits and earns delayed retirement credits. The result is larger benefits for the higher-earning spouse at age 70, but still allowing the lower-earning spouse to take benefits. This option has been eliminated — though there may still be time to file and suspend in the next 180 days and be grandfathered in for those who are currently eligible to do so.
Additionally, the changes prevent what some say is claiming Social Security twice. Previously, individuals could take a benefit based on their spouse’s earnings first, and then switch to their own earnings later, which then would be higher because they claimed it at a later age, earning delayed retirement credits. Under the revisions, this is no longer an option. If an individual suspends their own benefits, they cannot receive benefits on the basis of any other individual’s wages.
These provisions go into effect 180 days after the enactment of the Bipartisan Budget Act, or roughly April 30, 2016. Just who the changes will apply to, and when the changes will apply, is somewhat confusing under the Act. It appears those already using file and suspend will be grandfathered in. I anticipate the Social Security Administration will eventually post a notice on its website, and will likely revise its publications to address the changed rules, and hopefully clarify how the changes affect current recipients.