2016 has arrived, and for the tens of millions of Americans who receive Social Security benefits, the New Year is a good time to review what they can expect from the program over the coming year. While there are changes every year, 2016 has some unusual changes that you need to know about if social security is part of your current retirement planning.
Recipients will need to deal with the fact that there will be no cost-of-living adjustment for Social Security benefits in 2016 and for higher wage earners; the maximum Social Security benefit will fall in 2016 by $24 to $2639.
Recently (November 2) the bipartisan budget act was signed into law and with it came a number of social security strategy related changes. Those strategies include the following:
- File and Suspend
- File and Suspend for retroactive benefits
- Restricted Applications
- Divorced Spousal benefits
To review, let us look at an example of how file and suspend is used:
A husband and wife are both age 66 and at their full retirement age (FRA). The husband, with a monthly benefit of $2000 wants to wait until age 70 to collect his benefits. He wants to take full advantage of the 8% annual increase that would make his monthly benefit $2640. The wife, with no work history, is entitled to 50% of his benefit ($1000 per month) at her FRA. Since she will always be entitled to only 50% of his FRA benefits, it makes sense for her to file now. To do this the husband has to file for his benefits, and then suspend them until age 70.
So what are the changes with file and suspend in 2016? After April 30, this option is going away. In order to take advantage of file and suspend, the filer must be age 66 prior to or on April 30, 2016 and must have actually filed and suspended benefits. After April 30, 2016 file and suspend is not available.
These changes also apply to File and suspend for retroactive benefits. Under this strategy, the recipient is entitled to a lump sum of the benefits they would have received from the time they filed and suspended benefits to the current date. Again, as of April 30, 2016 file and suspend is no longer available and neither is the ability to collect retroactive payments unless you are 66 prior to April 30, 2016 and have filed and suspended.
When both spouses have a work history, another strategy they could utilize is Restricted Applications. In this scenario, the husband or wife is already collecting a SS benefit – the spouse at his/her FRA will collect a spousal benefit only from age 66 to age 70 and then at her age 70 switch over to his/her own benefit. Because he/she did not collect on their own benefit until age 70 his/her SS benefits received the 8% annual increase.
Under the new law the ability to receive a spousal only benefit (restricted application) will no longer be available to individuals who turn 62 after December 31, 2015.
Lastly, there are changes that impact divorced individuals’ social security strategies. Currently, law allows a divorced individual who qualifies for their own benefit to apply for only a spousal benefit on the ex-spouse’s earnings record if:
- They were married for at least 10 years
- Spouse B (who plans to collect the spousal benefit) is not remarried
- Spouse B is full retirement age or older
- Spouse B has not started collecting on their own record
- Spouses have been divorced for at least 2 years
This also changes in 2016. Individuals can no longer file for a divorced spousal benefit then switch to their own benefit later unless they are age 62 before December 31, 2015.
It takes some work to keep up with Social Security’s changes. But doing so will leave you better prepared to handle what’s coming next year and give you the ability to manage your future Social Security strategies more effectively. If you are already taking advantage of any of these strategies, the recent changes do not affect you.