Big Changes to Social Security with New Congressional Budget! Be Sure to Read It!
How the New Federal Budget has Changed Social Security
Facing another government shutdown, the House and Senate passed a new budget deal last month that suspends the debt limit until 2017 and increases funding levels for a number of federal programs. President Obama signed the deal into law early this month.
Although the budget averts a debt default and reduces the risk of a December government shutdown, it included provisions that cut two Social Security strategies designed to increase lifetime income for millions of Americans: file-and-suspend and applying for a restricted claim for spousal benefits.
The file-and-suspend claiming strategy permitted one member of a married couple to file for Social Security, so a husband or wife could file for spousal benefits. The filing spouse then could suspend his or her own retirement benefit, which then could grow due to delayed retirement credits by 8% a year.
The new budget also ends the ability of anyone born in 1954 or later to file what’s called a restricted application. This allowed people to collect only a spousal benefit while letting their own retirement benefits grow. With the new law, filing for spousal benefits will also trigger a person’s own retirement benefit. Social Security will pay the greater amount of the two benefits. Currently, this only applies to benefits claimed before age 66, but the new law will eventually extend it to older filers as well.
Workers and spouses who are currently using these strategies (e.g. have already filed and suspended claims) are grandfathered in under the deal and will not be affected. This means that if you filed for your own retirement benefits or do so in the next six months, your spouse can still file a restricted application for just spousal benefits. Your spouse will need to be at least 62 by the end of 2015 to qualify for this exception.
Retirees who will be age 62 or older by December 31, 2015 may still be able to file a restricted application for spousal benefits. Retirees who will be age 66 or older before Friday, April 29, 2016—may still have time to file and suspend and trigger benefits for their spouse or dependents. By doing so, your spouse may be eligible to receive benefits after the law becomes effective. You can also continue to receive delayed retirement credits for up to four years. If you are 66 or older and were planning to do this, you should start the process soon.
Widow or widowers will still be able to claim a survivor benefit while deferring individual retirement benefits and letting them go up in value. This assumes the survivor has not already filed for individual retirement benefits and that the benefit would be larger than the survivor benefit.
After the new rules take effect, if you voluntarily suspend your benefit, which can now only be done after reaching 66, you will not be able to claim benefits based on anyone else’s earnings record. In addition, no one will be able to claim benefits based on your record.
The new budget will also end the option to suspend your benefits and later claim a cumulative lump-sum, or retroactive payment, equal to all of your suspended benefits. However if you suspend before the end of April, you can still un-suspend them and collect retroactive payments.
Social Security has not yet posted any notice about the changes on its public site but we can expect them to do so soon. These changes will have a big effect on when to claim benefits and sharply reduce the ability to claim benefits for family members.
What You Need to Know About Social Security
The Social Security system has 2,728 primary rules and thousands upon thousands of additional supplements to help clarify these rules! One of the most important decisions facing a retiring worker is when to start taking Social Security. If you are like most Americans, Social Security may provide a significant portion of your retirement income. Social Security benefits currently account for about 36 percent of retirement income for the average American.
What is Social Security?
In this context, Social Security is a federal government sponsored retirement benefit designed to replace some of your income in retirement. If you or your spouse have worked for at least 40 quarters and paid taxes on the income, you may be eligible to collect benefits in retirement.
Source: Social Security Administration
One of the biggest mistakes today’s retirees can make is to underestimate the importance of Social Security in their retirement strategies. Social Security preparation can be complex and your personal situation makes a big difference when incorporating Social Security into your overall financial strategies.
Normal Retirement Age (full retirement age or NRA) is when you’re eligible to receive your full benefits. It used to be 65 for everyone, but current laws state that those born after 1938, normal retirement age is some point between 65 and 67. Here below are some important links and top social security resources and calculators to estimate your retirement, disability and survivors benefits. They can help you receive all of the benefits you’re due, and make smart decisions about when to claim them.
Social Security used to mail workers an annual earnings statement, but suspended those mailings recently to save money. Social Security resumed mailing paper statements to workers 60 and older who aren’t already receiving benefits and will mail paper statements to workers in the year they turn 25.
Before you can review your online earnings statement, you must go to http://www.ssa.gov/mystatement/ and create an account. After verifying your identity, you can create a username and password!
Here are some important Social Security Facts to Consider
- Your Age Affects the Benefit You Will Receive
62 is the earliest age that you can file for Social Security (unless you qualify for disability), but you won’t be
According to the Social Security Administration…
A man reaching age 65 in 2014 can expect to live, on average, until age 84.3.
A woman turning age 65 in 2014 can expect to live, on average, until age 86.6.
About one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95.
Social Security Administration Life Expectancy Planner, 2015
able to collect your full benefit then. Instead, the SSA reduces those benefits permanently by either 25 percent if your full retirement age (FRA) is 66 or 30 percent if it’s 67. So, if your full monthly benefit at age 66 were $1,000, you’d only receive $750 each month if you started collecting at age 62.
You will be eligible to collect 100 percent of your benefit at your FRA, which is age 66 for anyone born between 1943 and 1954, 66 plus a two-month delay for those born between 1955 and 1960, and age 67 for anyone born after 1960.
If you can afford to wait even longer, your benefit will increase by up to 8 percent every year until age 70. So, if your basic benefit were $1,000 at your FRA of age 66, it would increase to $1,320 per month or 132 percent of your benefit by waiting until age 70.
- The Right Social Security Strategy Could Be Worth Hundreds of Thousands of Dollars Over Your Lifetime
The most common Social Security question I get is, “When is the right time to file for benefits?” There is no perfect time to file for benefits, but choosing the right claiming strategy can radically affect how much you are able to collect over your lifetime. Many Americans are forced to claim early benefits for financial reasons, but, if you can afford it, delaying your benefits could mean collecting significantly more over the course of your life.
If either you or your spouse expect to live past the age of 80, you’re generally better off waiting to claim as long as possible. However, if your health isn’t good or you need the income, you might want to consider claiming your benefits early.
Ultimately, your personal Social Security strategy will depend on many personal factors like taxes, marital status, age, health, goals, risk tolerance and other sources of income. It’s a good idea to discuss your situation with a financial professional. For more information email me at firstname.lastname@example.org
- You Can Work and Collect Social Security, But it Might Affect Your Monthly Benefit
Many Americans are continuing to work well into their retirement years. You can continue to work and collect Social Security benefits, but your benefits may be reduced if you are below your FRA.
In 2015, if you are over 62, but younger than your FRA, you will lose $1 of your benefit for every $2 you earn over $15,720. Starting with the month you reach FRA, you will start receiving benefits with no reduction, even if you keep working. Once you reach your FRA, the SSA will recalculate your benefit and give you credit for any benefits that were withheld while you were working. Keep in mind that you must pay Social Security and Medicare taxes as long as you are earning income.
- Social Security Benefits Are Taxable
Unfortunately, retirement doesn’t mean retiring your worries about taxes. If you collect substantial income from sources like wages, investment income, rental income, or any source that you report on your tax return, you will very likely owe taxes on your Social Security benefits. The tax rate you’ll pay depends entirely on your overall income bracket since your benefits gets treated like ordinary income.
You won’t ever have to pay taxes on more than 85% of your Social Security benefits.
Social Security Administration Benefits Planner
However, there are strategies that may help you maximize your income while reducing taxes. For example, one method is to take as much income as possible from sources that are excluded from the “provisional income” that the SSA uses to calculate the taxation of your Social Security. Provisional income is your total gross income, including tax-exempt income, plus half of your Social Security Benefits.
Please keep in mind that taxes are just one piece of your overall financial picture and it’s important not to let them overshadow other important issues. If you are concerned about the effect of taxes on your retirement income, I recommend that you speak to a qualified financial professional.
- Married? Don’t Forget About Spousal and Survivor Benefits
Married couples need to think about how their Social Security claiming strategies will affect their spouse’s benefits and income in retirement. This issue is especially important when one spouse is significantly older than the other or earned more during a career. Your spouse’s benefits are based on your personal benefit, which means that the age at which you file for benefits will have a major impact on what your husband or wife is eligible to collect.
For many couples, maximizing a survivor benefit for a younger spouse is a major consideration. Since a survivor who has reached full retirement age (FRA) will be eligible for 100 percent of the primary worker’s benefit, he or she will be able to take advantage of any delayed retirement credits and cost-of-living adjustments that the primary earner accumulates. Surviving spouses can usually choose between collecting a personal benefit or a survivor benefit, depending on which one is higher.
- Advanced Filing Strategies Can Help Boost Your Lifetime Income
Are Advanced Filing Strategies Legal?
All of the strategies presented in this report are completely legitimate and have been used by millions of retirees to maximize their lifetime income.
However, high levels of federal debt and deficit spending mean that in the future, the Social Security Administration may limit retirees’ abilities to maximize their claiming strategies.
I encourage you to speak with a financial professional as soon as possible to discuss your personal Social Security strategy.
If you are married, there are some advanced claiming strategies that you and your spouse may be able touse to increase your lifetime benefits. Keep in mind that factors like taxes, age differences, life expectancy, retirement assets, family status and income all affect Social Security claiming strategies and can reduce their advantages to you. No strategy can be right for everyone and it’s important to consider your entire financial picture when making decisions.
File and Suspend is a very popular strategy in which the higher earning spouse files for benefits at his or her FRA, and then suspends the claim. Filing for benefits allows the spouse to collect spousal benefits while the higher wage earner’s benefits continue to accumulate credits.
Filing for benefits allows the spouse to collect spousal benefits while the higher wage earner’s benefits continue to accumulate credits. Let’s take a look at a hypothetical example to see how this strategy works: Arthur earned more during his career than Joann, making his Social Security benefit significantly higher; Joann’s spousal benefit is higher than her own personal benefit. Arthur files for his Social Security benefits at his FRA of 66.
He also immediately suspends that claim (postponing the income) so that his benefits continue to accrue. Since Arthur has already filed for benefits, Joann is able to start claiming spousal benefits (a full 50 percent of Arthur’s benefit since she is also at her full retirement age). These spousal benefits do not accrue any additional delayed retirement credits. At age 70, Arthur begins collecting his own benefits, which have grown to 132 percent of his basic benefit, plus any cost-of-living increases.
Keep in mind: while “file & suspend” can be implemented before full retirement age, the benefits of the strategy may be significantly reduced. If both you and your spouse worked and are eligible to collect benefits on your own employment records, there are some other advanced strategies that may help you increase your lifetime benefits. These strategies won’t work for everyone. They are generally most beneficial when spouses are close in age and the higher earner has reached full retirement age.
File and Suspend Plus is another strategy that allows the higher earner to file and suspend at his or her FRA, enabling the spouse to collect a spousal benefit when he or she reaches full retirement age. Both spouses however will collect their higher personal benefits once they turn 70. The benefit of this strategy is that it maximizes household Social Security income at every stage and also increases the survivor’s benefit.
For example, Steve is the higher earner and is also two years older than his wife, Jane. Steve files and suspends at his full retirement age of 66 to allow Jane to collect a spousal benefit while Steve’s benefit continues to accrue. Since Jane has not yet reached her FRA, she’ll have to wait two years to claim her spousal benefit, per SSA rules.
At age 70, Steve begins collecting his larger personal benefit and Jane continues with the spousal benefit. When Jane turns 70, she switches over to her personal benefit, which has been accruing extra credits the whole time, increasing their household income. If Steve predeceases Jane, she will be able to collect a larger survivor’s benefit, which will be 100 percent of Steve’s maximum benefit.
The Spousal Benefit Change-Up is a scenario in which the lower earner claims benefits at full retirement age, allowing the higher earner to claim a spousal benefit while his or her personal benefit continues to accrue. At age 70, the higher earner switches to collecting his or her personal benefit. Here’s a hypothetical illustration of this strategy:
Mark and Anna are both at their full retirement age of 66 and Mark is the higher earner. Anna claims her full Social Security benefits at age 66, foregoing any additional credits. Mark claims his spousal benefits as Anna’s husband while letting his own benefit accumulate. At age 70, Mark switches to his personal benefit plus accumulated credits, while Anna continues to take her personal benefit, since it’s higher than what she would get as Mark’s spouse. At Mark’s death, Anna can switch to her higher survivor’s benefit, which is 100 percent of Mark’s maximum accumulated benefit.
The benefits of advanced claiming strategies are that they seek to maximize income while increasing the survivor benefit. As with many financial strategies, the truth is in the details, and things like age differences between you and your spouse, taxes, and life expectancy can all affect your overall outcome.
Are You Making These Critical Social Security Mistakes?
Since Social Security benefits are the cornerstone of their income strategies and account for a significant percentage of their income, it’s absolutely critical to plan ahead now so that you can identify and implement the best Social Security claiming strategy and make the most of this invaluable resource.
Every strategy will not work for every retiree, which is why it’s so important to take the time to analyze your needs and test possible scenarios. The hypothetical examples that we have shown are highly simplified and cannot show the effects of taxes, cost-of-living adjustments, and many other details that can affect the overall outcome of any claiming strategy.
One of the benefits of working with a financial professional is that we can help you analyze your financial situation and develop personalized recommendations that are designed to help you best leverage Social Security in light of your overall financial goals.
Important Facts on Social Security That You Need To Know
- How to Maximize Your Social Security Benefits Webinar Video
- Important Ages You Need to Know for Social Security
- Important Numbers You Need to Know for Social Security
- 5 Essential Facts On Your Social Security Statement
- When To Start Receiving Retirement Benefits Article
How to Get More Money From Social Security (Advanced Claiming Strategies)
- How To Get More Money from Social Security Part 1
- How To Get More Money from Social Security Part 2
- How To Get More Money from Social Security Part 3
- How To Get More Money from Social Security Part 4
Social Security Resources
- Social Security Home Page
- Apply for Social Security Benefits
- Retirement Estimator – Calculate your benefits based on your actual Social Security Earning Record
- Social Security FAQ
Important Retirement Resources
Check your social security statements at ssa.gov frequently so you can:
- Verify your earnings have been reported correctly. With 220 million W2’s reported, a 1% error rate is 2.2 million which is a lot! Your earnings record could contain errors if you changed your name and failed to report it to Social Security, or your employer used an incorrect name when reporting your earnings. Errors can also occur when an employer uses the wrong Social Security number, or fails to report your earnings correctly. Self-employed workers are required to report their own earnings and comply with different rules than those that apply to wage earners. This can lead to potentially a greater chance of errors. The Social Security Administration may scrutinize your records more closely than they do wage earners’ records, so it’s important to make sure the information is correct.
- Your estimated Social Security benefits. The program gives you three estimates for monthly payments: at age 62, full retirement age (which varies, depending on when you were born) or when you turn 70.