K
  • Budget Deal Changes Social Security

    By Leon Grove DBA, Full Time Faculty
    Kaplan University
     
    Published April 2016

    The passing of the Bipartisan Budget Act of 2015, signed into law November 2, 2015, will add 500,000 jobs over the next 2 years. However, the more critical information is that major changes are coming to Social Security retirement benefits. This decision comes at the height of the Baby Boom generation who will celebrate their 65th birthday, and for every day for the next 19 years, 10,000 baby boomers will reach age 65 (Pew Research Center). 

    For people who will reach their Full Retirement Age (FRA) this year, the window of opportunity for planning under the old ruling will close as of April 30, 2016. Individuals turning age 66 before April 30, 2016, that have not filed for Social Security retirement benefits will have an opportunity to use one of the two rulings that will be eliminated by the Act on April 30, 2016: the file and suspend and the file restricted. 

    Among married couples, the file and suspend and the file restricted were designed to help seniors increase their Social Security benefit by delaying retirement. According to Lynn Nolan, director of Retirement Planning Services at Penn Mutual Life, advocates for rule changes argued that the ultra-wealthy were abusing the system to reap excessive rewards. However, the reality is that removing the file and suspend and file restricted strategies will reduce the overall Social Security benefits to millions of Americans across every income level (National Underwriter Life & Health, Jan, 2016).

    Individuals who are already receiving benefits are not impacted at all and individuals who turn 66 years old before April 30, 2016 can still file and suspend benefits, but they must do so by April 30, 2016. The file and suspend and/or the file restricted can add tens of thousands of dollars in spousal benefits.

    The benefit to the old ruling permits one spouse at full retirement age (the higher earning spouse) to file and suspend retirement benefits. Once suspended, the other spouse can file and receive spousal benefits which can add income benefits while the higher earner suspends benefits. The result is that the higher earning spouse then earns 8 percent in delayed retirement credits until age 70. This will result in 132 percent increase in monthly benefits.

    The new ruling for the file and suspend and the file and restrict through the Section 831 of the 2015 Budget Legislation closes Social Security loopholes. The new provisions are found under Section 831 of the Bipartisan Budget Act of 2015 to note that once the higher earner suspends Social Security benefits, he or she will also suspend any benefits payable to spouse or children. The elimination of these provisions could save the Social Security Administration as much as $9.5B, according to the Center for Retirement Research.

     

    References   

    H.R.1314 - Bipartisan Budget Act of 2015

    https://www.whitehouse.gov/blog/2015/10/29/bipartisan-budget-agreement-what-you-need-know

    http://www.pewresearch.org/daily-number/baby-boomers-retire/

    Nolan, L. A. (2016). Social Security Changes 2016. National Underwriter Life & Health, 120(1), 20-24.

     

    Leon Grove is a full-time faculty member at Kaplan University. The views expressed in this article are solely those of the author and do not represent the view of Kaplan University.

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