Social Security Changes & Your Retirement Plans

As Congress attempts to balance the national budget, they are making adjustments to the Social Security program that will have far reaching impacts on seniors in their golden years. These changes are part of a broader legislative platform that is seeking to revamp the way seniors file and collect their social security benefits.

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Social Security and Retirement Plans

Changes to File & Suspend

In the past, married couples were able to maximize Social Security benefits by allowing one spouse to claim a spousal benefit that was equal to 50% of the other spouses full retirement benefit. In the meantime, the other spouse could delay their benefit while earning an 8% retirement credit for filing but suspending their benefits.

This made it possible for the couple to begin collecting benefits on person’s benefit while earning a significant rate of interest on the other. The result was that couples could effectively shore up their retirement savings prior to the other spouse retiring. Under the new rules, this is no longer possible and if one spouse suspends their benefits, they are required to suspend all of their benefits, including spousal benefits.

Restricted Application

Changes to restricted application will affect dual-income couples the most. If one spouse who earned a similar income to the other spouse throughout their careers files for Social Security benefits, they cannot collect spousal benefits during the period that the other spouse may suspend their benefit. These rule changes are likely to hit women the hardest as the current generation typically earned less than their spouse and this was one way they were able to make up for some of that difference in income.

Impact on Divorced Spouses & Widows

Divorced spouses whose marriages were 10 years or longer and are currently single will still be entiled to collect Social Security benefits from their ex’s earnings record. This is possible even if the divorced spouse has yet to claim their benefits. However, the divorce must have been finalized no less than two years prior to the application for benefits. If an individual is in the process of getting divorced, it is advisable to speak with a Chicago Social Security lawyer for guidance.

Implementation Will Take Place Gradually

The good news is that if an individual is already employing one of these retirement strategies they will not be affected in any way as they are grandfathered in. For everyone else who was born on or before the 1st of May, 1950, they have until April 29, 2016 to “File & Suspend” in order for a spouse to claim their spousal benefits.

Additionally, individuals born between the 2nd of May, 1950 and the 1st of January, 1954 will remain eligible for restricted application, however, they will not be eligible for File and Suspend. Anyone born after the 2nd of January, 1954 will not be able to utilize either option.

Future Changes

59 million Americans currently rely on Social Security benefits each month. This includes wage earners, spouses, and dependents. As this number grows in the future, Congress is seeking additional options to streamline the program and in Washington parlance, “keep it in the black.” Ideas on the table include the following:

  • Reductions in Social Security Disability Insurance
  • Raising the minimum age when retirees can file
  • Changing the COLA calculation
  • Increasing payroll taxes
  • Reducing benefits for high earners
  • Increasing the number of years used to calculate benefits
  • Implementing means testing

These proposals have not been adopted, however, they are being debated. As such, it is important for workers and seniors alike to pay attention to the debates and discussions taking place in Washington. There are likely to be more changes in the coming years and these will have a significant impact on the benefits individuals will receive.

Social Security Administration Sounding Alarms

The SSA has estimated that the Old Age Survivors and Disability Insurance Trust Fund will be depleted by 2037 unless changes are made in the immediate future to offset future expenditures. The agency estimates that under current expenditure levels they will only have enough tax revenue to pay 75% of benefits to future beneficiaries. It is these reports issued by the SSA that has triggered the recent rule changes.

Covering Your Retirement

Seniors who will be nearing the age where they can collect benefits are advised to meet with a Chicago Social Security lawyer to discuss their options in regard to their Social Security benefits. Because these changes will become effective in six months, there is still time to plan a strategy that will maximize an individual’s retirement income. The sooner an individual begins preparing for these changes, the sooner all options can be explored and a defined path chosen. As more changes are rolled out in the coming years, it will also be necessary for existing and future retirees to keep abreast of these changes and to adjust their retirement planning accordingly.