Major Changes to Social Security in 2016

            Budget negotiations between Congress and President Obama have resulted in some significant changes to Social Security that will take away some of the strategies that married couples can use to increase their benefit payouts.

            The “File and Suspend” strategy will be gone by May, 2016.   Under this option the higher wage earner files for his/her benefits at full retirement age (currently 66) and then immediately suspends the claim.  This allows the benefit amount to continue to increase by 8% until age 70 at which point the wage earner reclaims the benefit, netting a higher amount.

            By filing and suspending at 66 the lower earning spouse can collect spousal benefits, usually one-half of the amount at age 66.  The rule change will eliminate this option so that no one will be able to collect when a claim is suspended.  Anyone currently receiving benefits under this strategy will be grandfathered and will continue to collect.  This strategy is also still an option for those considering it until the change becomes effective, probably in May, 2016.

            The file and suspend strategy also has been a way to collect benefits retroactively.  In the normal instance, Social Security does not permit going back more than 6 months to collect back benefits.  However, under file and suspend there is no limit.  For example, if you file and suspend and 66 and become ill at 69 you could collect the benefits going back to age 66.  You must, however, give up the 8% increases to do that.  With the coming changes, that option will no longer be available.

             Next week I’ll share some more of the coming changes.