Changes to Social Security Rules for 2016

The Bipartisan Budget Act of 2015, passed by Congress and signed into law on November 2, included some changes to Social Security for 2016.

The first two affect how married couples can claim their Social Security benefits. These changes, which were designed to eliminate perceived loopholes for married couples, may present some planning opportunities for you. Please contact our office if you have questions or would like to arrange a personal consultation.

1. No more “file and suspend” when claiming benefits.
Under the current law, John files for Social Security benefits then suspends his benefits before receiving a payment. His wife Mary files for spousal benefits on John’s account. John continues to work, building higher retirement benefits on his account. Mary can also continue to work and build higher retirement benefits on her own account. This method of taking benefits could provide them with up to $40,000 or more in additional retirement income.

Under the new law, effective April 30, 2016, John must actually receive benefits under his account before Mary can take a spousal benefit from his account.

Note: This change in the law does not apply to married couples who have already filed and suspended benefits.

Planning Tips: If you are age 66 now or will become age 66 before April 30, 2016, you can still file and suspend. Also, if you have filed benefits on your own record, you can later suspend and accumulate credits to age 70. However, your spouse would not be able to claim a spousal benefit from your account during this time.

2. No more “claim now, claim more later” or “restricted applications.”
Under the current law, John (who earns more than Mary) claims a spousal benefit on Mary’s account at his full retirement age. When he reaches age 70, he stops taking the spousal benefit and takes his maximum benefit from his own account. This provides John with a larger benefit from his account because he has waited until age 70 to start taking his benefits.

Under the new law, only those age 62 or older at the end of 2015 will be able to choose which benefit is desired at their full retirement age. Those under age 62 may only apply for benefits under their own work record. They would still be eligible for the higher benefit, but would not be able to take the spousal benefit first, keep working to build up their account, and then switch to their own account at age 70.

3. No Cost of Living Adjustment (COLA) for 2016
There will be no cost of living adjustment for Social Security recipients in 2016 or for those who receive pension benefits from the Veterans Association. Increases to both are tied to the Consumer Price Index (CPI), which fell .2% in September. Presumably, this means that the cost of living should be going down for all of us. However, with the ever-increasing costs of health care, especially for seniors, this is not actually the case. And for those who are on fixed incomes, this is not good news. This is actually the third time in recent years there has not been a COLA.

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