Congress amends Social Security benefits

SocialTwist Tell-a-Friend
Elliot Raphaelson

In addition to funding the federal government through the 2017 fiscal year, the recent Bipartisan Budget Act introduces important changes to Medicare and Social Security.

On the beneficial side, it reduces the proposed increase in premiums of Medicare Part B from 52 percent to approximately 15 percent for those participants not covered by the “hold harmless” provision. [See “2016 Social Security, Medicare changes,” in our November edition, where this proposed increase was described.]

The bill also provides additional funding for Social Security disability claims — without which disability payments would have been reduced by approximately 20 percent in 2016.

On the downside for many retirees, the law significantly changes the rules regarding eligibility for the “file and suspend” option and for a “restricted application” to collect only a spousal benefit.

As I’ve explained in past columns, “file and suspend” is a strategy whereby a person who has reached his or her full retirement age (FRA) files for benefits and then suspends them. This permits him or her to accrue an 8 percent bump-up in retirement benefits for every year of suspension up to age 70. Meanwhile, that person’s spouse and dependent children are entitled to benefits based on his or her work record.

The budget act bars the spousal and dependent benefits for those who file and suspend May 1, 2016 and after. You can still file and suspend your benefit, but there will be no other benefit to your spouse or children.

If you have already filed for it, you will not be affected by the change. And if you reach your FRA by the end of 2015, you may file and suspend with spousal and dependent benefits up until April 30, 2016.

If you are able to do so, I recommend it. There is no downside. If you wait until after the deadline to file and suspend, you won’t have the flexibility to provide these benefits to your spouse and dependent children.

A similar strategy is the restricted application for spousal benefit. This is where a person 62 or older applies only for his or her spousal benefit (equal to up to 50 percent of the spouse’s benefit), and collects that while putting off applying for benefits on his or her own work record, accruing the 8 percent yearly credits for doing so from FRA until age 70.

This option is available only if your spouse is receiving benefits or if he/she has filed and suspended. Only individuals eligible for restricted status can obtain spousal benefits and also postpone filing for benefits until 70, thus becoming eligible for a higher benefit.

Under the new law, however, if you turn 62 in 2016 or later you will not be provided restricted eligibility for a spousal benefit. This means that if you apply for Social Security benefits, either for a spousal benefit or a benefit based on your work record, you will be entitled to whichever benefit is higher. You will not be able to apply for one benefit now and a different benefit later.

Widows and widowers will still be able to claim benefits based on their ex-spouse’s record and apply later for benefits based on their work record, and vice versa. Their flexibility has not changed with the new budget act.

For additional information, see Michael Kitces’ blog, Nerd’s Eye View, www.kitces. com/blog. Web Phillips, senior legislative representative of the Committee to Preserve Social Security and Medicare, is another excellent source. Their site (www.ncpssm.org) contains up-to-date information.

The bottom line is the Obama administration and Congress have taken away some favorable options for younger Social Security participants that older individuals still have. And it was done behind closed doors with no public notification.

You can complain to Congress and ask them to find other ways to save money. You have nothing to lose.

Elliot Raphaelson welcomes your questions and comments at elliotraph@gmail.com.

© 2015 Elliot Raphaelson. Distributed by Tribune Content Agency, LLC.