Big Changes in Social Security Benefits

The most recent changes to Social Security law came about from The BiPartisan Budget Act of 2015, which made changes to the Social Security system that affect married couples, and also affect the amount someone can get based on an ex-spouse. Overall these changes were minor.

Major changes to the Social Security system have been proposed with the introduction of the Social Security Reform Act of 2016. These changes are only proposals. Like many proposed bills, the changes may not pass at all, or a much altered version may end up passing in 2017 or 2018. These changes would be major changes that could alter the way Social Security benefits are calculated, would change the inflation adjustment, and could reduce benefits for high income retirees.

Below is an overview of the changes that came about from the BiPartisan Budget Act of 2015, and an outline of the proposed changes introduced with the Social Security Reform Act of 2016.

BiPartisan Budget Act of 2015 Social Security Changes

What the new 2015 Social Security laws did was eliminate the claim now, claim more later and spousal switching type of strategies. The worst case scenario for a couple is that four years of spousal benefits that they thought would be available – won’t be. For some dual income couples, that means they'll receive less benefits during the four years from ages 66 - 70.

The specific rules that changed had to do with the ability to file a restricted application and the voluntary suspension of benefits. Details are below.

Restricted Application Option for Couples Phasing Out

For married couples, if you were planning on having one spouse file a restricted application at their full retirement age so that they could claim a spousal benefit (thus allowing their own benefit to continue to grow to be claimed when they reached age 70), for anyone born January 2, 1954 or later, that option is longer available.

This means if you turned 62 on or before 1/1/2016 you can still file a restricted application. However, you will still need to wait until your full retirement age of 66 to file it.

If you turn 62 on or after 1/2/2016, when you file for benefits, you will be filing for all benefits available (something called deemed filing) and so you will get the larger of your own benefit or a spousal benefit.(Technical note: Your spouse must have filed for their own benefit for you to be eligible for a spousal benefit. If you file first, you will get your own benefit. Then later when your spouse files, if the spousal benefit will be more than your own, your benefit amount will increase.

The elimination of the restricted application can and will affect a divorced spouse (assuming the couple was married for at least ten years) who was planning to restrict his/her application to claim a divorced spouse benefit for a few years and then later switch over to claiming their own.

The restricted application is still allowed for widows or widowers. This means a widow can restrict her application to only a widow benefit, allowing her own benefit to continue to accumulate delayed retirement credits. She could then switch to her own benefit at age 70 if it would be larger than her widow benefit.

Voluntary Suspension Now Means Related Benefits Also Will Be Suspended

The BiPartisan Budget Act of 2015 also changed the rules around the voluntary suspension of benefits. For couples, it often made sense for the higher earner to suspend benefits when they reached full retirement age. This would allow their spouse to collect a spousal benefit. Then, upon reaching age 70 the higher earner would un-suspend and claim their age 70 benefit amount.

What happens with the new rules is that if you suspend your benefits, all benefits based on your record (with the exception of benefits for an ex-spouse) will also be suspended. So if you suspend, your spouse cannot claim a spousal benefit, as that benefit would also be suspended. These new rules began 180 days from the effective date of the legislation. The last day to file a voluntary suspension under the old rules was April 29th 2016.

If you have already voluntary suspended and have a spouse claiming a spousal, or if you did so before April 29th 2016, you will be fine and are grandfathered in under the old rules.

Social Security Reform Act of 2016 Proposed Changes

Below is a simplified summary of the proposed changes introduced in late 2016.

For those born 1960 and after, it would increase the full retirement age from 67 to 69.

For high income retirees, the cost of living adjustment (COLA) would be eliminated, while low income retirees would likely see a large COLA applied.

Beginning in 2045, the taxation of Social Security would be phased out.

The earnings test would be eliminated, which would provide an incentive to continue working in early retirement while receiving your benefits.

A change to the way benefits are calculated would be implemented so that lower income workers would see an increase in benefits.

There is no telling what form any final changes may take, or when such a bill might pass. It is likely that major changes would be phased in, as it takes time to reprogram changes to the benefit calculations.

The average person who is near retirement, or who is already collecting their Social Security benefits, would not see a major impact should these proposed changes go into effect.